Better-than-expected UK GDP and industrial production data has lifted confidence in the pound, exposing key support in the EUR/GBP pair to a potential downside breakout, noted Chris Turner, FX analyst at ING.
EUR/GBP is weak as markets reassess the timing of interest rate cuts from the Bank of England
“The UK delivered a positive set of data this morning, including a higher than expected monthly GDP figure for November and stronger than expected industrial production numbers. Just before that, we also received some positive news in the housing market, with estate agents becoming more optimistic about sales.”
“All of this is happening at a time when asset managers are still running some reasonably large positions in sterling. We believe the sterling correction we have seen since November may have more time to go, especially with the risk of an upside surprise in December in the UK CPI due out next week.”
“Given the situation, we think EUR/GBP support at 0.8645/55 looks weak and risks are rising towards a breakdown to 0.8600 next week. Below there should be a good opportunity to hedge against sterling weakness in March, when we expect the Bank of England to make its next cut. For reference, financial markets are currently pricing in the next cut in April and then again by December. We are looking at cuts in March and June.”
