Weekly Eurozone – GBP mainly low on EUR selling pressure

by: Georgette Boele

In September both BoE rate hike expectations and the GBP rally versus the EUR ran out of steam. This reflects the view that optimism on the UK economy was overdone. Moreover, the BoE has continued communicating that interest rates will not rise anytime soon. As a result, this increased the pressure on rate hike expectations and the GBP. However, GBP sharply recovered from a weak start last week. The main reasons for this were another upside surprise in house prices and low eurozone inflation data. The latter added pressure on the ECB to do more. The risk of an ECB rate cut has clearly increased and this has resulted in a sell-off of the EUR including versus the GBP. This week, both the BoE and the ECB will both decide on monetary policy. We expect the BoE to be less dovish compared to the ECB for the remainder of 2013. As such we keep our modest appreciation path for GBP versus the EUR in place.

 

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