Nomura predicts a possible upward movement for the EUR/GBP currency pair towards 0.88 or even 0.90 by the end of the year.
Key Points:
1. Quiet Week for the UK and Euro Area: Nomura notes that the upcoming week is expected to be relatively quiet for both the UK and the Euro area, with the final PMIs (Purchasing Managers’ Indexes) and the Bank of England ‘s (BOE) decision-maker panel in the UK and the PPI (Producer Price Index) and retail sales releases in the Euro area.
2. Shift in Market Focus: The markets have shifted away from trading based on rate spreads, which would suggest a strengthening of the GBP, and are now more focused on growth expectations. Global surveys have been disappointing recently, leading to the underperformance of high-beta currencies.
3. Overpriced Rate Hikes: The market is currently pricing in 121 basis points of BOE policy rate hikes by the end of the year, which contrasts with Nomura’s forecast of 75 basis points.
4. UK CPI Might Surprise on the Downside: Nomura mentions that its leading indicators suggest that the UK Consumer Price Index (CPI) could surprise on the downside in the second half of the year.
5. EUR/GBP Expected to Grind Higher: Taking into account the overpriced rate hikes and the possibility of a downside surprise in UK CPI, Nomura believes that EUR/GBP is likely to gradually move higher, reaching levels around 0.88 or even 0.90 by the end of the year.
Summary: Nomura expects the EUR/GBP currency pair to gradually move towards 0.88 and possibly 0.90 by the end of the year. The financial services group cites the market’s shift in focus from rate spreads to growth expectations, overpricing of BOE rate hikes, and the potential for UK CPI to surprise on the downside as factors that could contribute to the movement in EUR/GBP. This expectation comes despite a relatively quiet upcoming week in terms of economic data releases for both the UK and the Euro area
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