EUR/GBP: Scope for corrective bounce - ING

ING’s Francesco Pesole notes EUR/GBP has fallen about 1.5% since the Iran conflict began, helped by a stronger GBP rate profile and resilient equities. However, he argues the move now looks stretched on short-term valuation metrics and, with Oil back below $90, he prefers a corrective rise toward 0.870 over a further decline to 0.860.

Cross looks stretched after recent slide

"EUR/GBP continues to trade on the soft side, having dropped around 1.5% since the start of the Iranian conflict. This dynamic reflects both the larger hawkish repricing in the GBP curve and the relative resilience of equity markets, which have prevented a rotation from the higher beta GBP to the lower beta EUR."

"The move does, however, start to look a bit stretched according to our short-term valuation metrics, and the decline in oil prices below $90 today may well encourage some dovish re-assessment in UK rate expectations and prompt a correction higher in EUR/GBP. We continue to favour a return to 0.870 rather than a drop to 0.860."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)