EUR/GBP: Under pressure near term, rebound expected from 2Q onwards – ING

EUR/GBP moved modestly higher on Tuesday. Economists at ING analyze the pair’s outlook.

Deterioration in economic conditions in the UK will ultimately warrant substantial BoE rate cuts

We remain of the view that a deterioration in economic conditions in the UK will ultimately warrant substantial BoE rate cuts (we estimate 100 bps), while markets are considerably overestimating the size of the ECB easing cycle.

However, data releases and BoE commentary in the near term may encourage some hawkish repricing at the front end of the GBP curve, which could keep pressure on EUR/GBP. We still target a rebound in the pair from 2Q onwards.