British Pound: Uptrend sustainability questioned versus Euro – ING

ING’s Francesco Pesole notes the Pound has been resilient against the Dollar and EUR/GBP has fallen about 0.5% since Friday, partly on positioning ahead of the Bank of England meeting. However, he sees risks skewed dovishly for the BoE, doubts EUR/GBP can fall much further, highlights multiple upside risks in coming weeks, and maintains a 0.87 target for EUR/GBP.

BoE risks seen skewed dovish

"The pound has shown good resilience to the dollar’s advance. EUR/GBP is down by around 0.5% since Friday, perhaps on some precautionary positioning ahead of the Bank of England meeting on Thursday."

"But as discussed in our preview, we think the risks are actually on the dovish side this week. Unlike the ECB, we suspect BoE doves will hold their ground and stress that there is no evidence price pressures are extending beyond energy prices."

"We also see some risk that Governor Andrew Bailey himself pushes back against aggressive market pricing (45bp by December, 100bp by June)."

"We struggle to see EUR/GBP falling much further from here. Most risks appear on the upside in the coming weeks, from the monetary policy story mentioned above to potential fiscal headlines ahead of the late October budget to growing pressure on Downing Street to allow independence referendums in Scotland, Wales and Northern Ireland."

"Our target remains 0.87 for EUR/GBP."