EUR/GBP Outlook:
The EUR/GBP is slightly weaker and likely to move sideways as it trades just below its 3-month average and near recent lows. This indicates uncertainty in both the Eurozone and UK economies, despite supportive factors for the euro.
Key drivers:
• Rate gap: The Bank of England's cautious stance on rate cuts contrasts with expectations for the European Central Bank to maintain its policy.
• Risk/commodities: Oil prices are significantly above average, which typically supports the euro but creates uncertainty for the pound as costs rise.
• One macro factor: The upcoming Eurozone retail sales recovery could bolster the euro if realized, improving the currency's outlook.
Range:
EUR/GBP is expected to hold within its recent range, fluctuating between 0.8628 and 0.8787 as both currencies face headwinds.
What could change it:
• Upside risk: A stronger-than-expected recovery in Eurozone retail sales could shift momentum in favor of the euro.
• Downside risk: Further declines in UK employment data could pressure the pound, potentially pushing EUR/GBP higher.
