GBP/EUR Outlook: Slightly weaker, but likely to move sideways, as the rate is near recent lows and above its 3-month average without a clear driver.
Key drivers:
• Rate gap: The Bank of England's cautious stance on interest rate cuts contrasts with the European Central Bank's neutral policy, affecting currency flows between GBP and EUR.
• Risk/commodities: Oil is trading above its recent average, raising inflation concerns that could pressure the GBP, while providing some support to the Euro amid geopolitical tensions.
• One macro factor: UK GDP growth projections have been revised lower, reinforcing concerns over economic stability that may weigh on the Pound.
Range: GBP/EUR is likely to drift within its recent stable range, encountering resistance and support points.
What could change it:
• Upside risk: Improved UK labour market data could boost GBP sentiment and lead to a stronger exchange rate.
• Downside risk: Escalating geopolitical tensions could lead to increased demand for safe-haven currencies, putting further pressure on the GBP.