EUR/GBP: Unlikely to suffer a drop below the 0.83 level – Scotiabank

The pound outperforms with markets pricing in four more Bank of England (BoE) hikes next year. This outlook is set to keep the EUR/GBP pair below 0.86 but a dive under 0.83 is not likely, in the view of economists at Scotiabank.

Markets are pricing in four 25bps BoE rate increases over the next twelve months

“Markets are pricing in four 25bps BoE rate increases over the next twelve months (in Feb, May, Aug, Nov/Dec, roughly) to take the bank’s terminal rate to 1.25% as they expect a slight overshooting to rein in inflation.”

“While the BoE’s tightening cycle will act as a key driver for GBP strength against the EUR over the medium-term, to keep the cross under 0.86, it may not provide much more ammunition for a move below 0.83 with markets already fully pricing in the feasible maximum of BoE hikes next year.”