UBS, on Tuesday, noted a stable outlook on the rate with a slight downward bias for the pair, attributing the stability to similar monetary policy cycles between the Bank of England (BoE) and the European Central Bank (ECB).
UBS pointed out that the BoE’s decision to cut rates in August was a narrow one, with a 5 to 4 vote among board members, suggesting future rate cuts could be gradual. The next rate cut is not anticipated until the BoE’s November meeting.
It highlighted a key difference between the two central banks: UK yields are approximately 1 percentage point higher than those in the Eurozone, which gives the British pound a carry advantage.
UBS expects this yield gap to continue over the forecast horizon, leading to a stronger pound relative to the euro in the coming quarters. However, the potential for the BoE to accelerate rate cuts prevents UBS from predicting an even lower EUR/GBP rate.
In terms of investment considerations, UBS forecasts the EUR/GBP to remain relatively rangebound with only a slightly lower spot rate expected in the near future. The GBP is seen to have some advantage, barring any significant policy changes.
UBS outlines the boundaries for the EUR/GBP, expecting it to stay within the 0.835 to 0.875 range, a bracket it has maintained over the past 12 months.
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