Forex: EUR/GBP Looks Cheap –ING Note
The pair EUR/GBP has found some support close to the key 0.8500 level and is trading on the strong side this morning after UK retail sales came in lower than expected this morning, ING FX analyst Francesco Pesole said in a note.
However, the pair is more likely to find some support than fall much further as the ECB’s sanguine view on wages should not prevent further gradual shifts towards a less dovish narrative, Pesole added.
The April print showed headline sales falling 2.7% year on year and the “ex-auto fuel” gauge -2.0%. March figures were also revised lower.
This morning’s data follows a generally soft UK purchasing manager index (PMI) report yesterday, where the rebound in manufacturing failed to prevent a service-driven drop in the composite index to 52.8.
Analyst said the British pound is looking expensive vs the euro at current levels, in our view.
“The big hawkish repricing in the Sonia curve appears overdone given the hotter-than-expected May services CPI is partly attributed to one-off factors, and we have seen signs of a dovish shift in the Bank of England’s MPC balance.
“Markets are pricing in only 33bp of easing by year-end and less than 10bp for the August meeting. We still expect an August cut, and see any views for delayed easing due to the UK vote”
Given the risks of the EUR: GBP short-term swap rate gap moving in favour of the euro (hawkish ECB cut and BoE cutting in August), and adding the risks of some small political risk premium being priced into sterling ahead of the July vote, we remain comfortable with our view that EUR/GBP will be heading higher beyond the short term”, Pesole said. #Forex: EUR/GBP Looks Cheap –ING Note
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