According to ING analysts, easing is priced out following the Iran war, and markets are excessively aggressive about Bank of England forecasts. They point to the negative association between EUR/GBP and oil and caution that by year's end, no rate changes are anticipated. Without BoE raise pricing, valuation metrics indicate that a decline in EUR/GBP below 0.860 would appear exaggerated.
BoE expectations are perceived as being excessive.
"EUR/GBP continues to exhibit a negative correlation to oil prices, in our view, primarily on the back of the perception that the UK has had a stronger inflation problem and the Bank of England's policy is set to be affected by energy costs more significantly."
"Our valuation metrics also suggest a move below 0.860 would be somewhat stretched until markets start to seriously price in a rate hike by the BoE."
"Markets have priced out BoE easing too aggressively, which continues to worry us. Since the beginning of the Iran crisis, the two-year GBP swap rate has increased by 50 basis points, and by year's end, no rate changes are anticipated.
"Any positive surprises on the de-escalation front has considerable EUR/GBP upside risk, in our opinion."
BoE expectations are perceived as being excessive.
"EUR/GBP continues to exhibit a negative correlation to oil prices, in our view, primarily on the back of the perception that the UK has had a stronger inflation problem and the Bank of England's policy is set to be affected by energy costs more significantly."
"Our valuation metrics also suggest a move below 0.860 would be somewhat stretched until markets start to seriously price in a rate hike by the BoE."
"Markets have priced out BoE easing too aggressively, which continues to worry us. Since the beginning of the Iran crisis, the two-year GBP swap rate has increased by 50 basis points, and by year's end, no rate changes are anticipated.
"Any positive surprises on the de-escalation front has considerable EUR/GBP upside risk, in our opinion."
