ING said on Friday that it expects the euro to appreciate against the British pound in the short term, forecasting EUR/GBP to move beyond the 0.880 level as factors inside the UK weigh on sterling.
The bank is anticipating a rate cut at the Bank of England's March meeting, with markets currently pricing about 20 basis points of easing into that session. ING also projects a further cut in June, although market participants assign only roughly a 40% probability to that second move.
ING flagged current geopolitical risk combined with fragile risk sentiment as forces likely to put more downward pressure on the pound than on the euro. The bank highlighted domestic dynamics as the principal driver of expected sterling weakness and specifically pointed to political risk as a material concern for the currency.
Despite describing the euro as less preferable than the pound in its present assessment, ING retained a baseline view that EUR/GBP has short-term upside and will breach the 0.880 threshold.
Official UK data released on Friday showed a marked pickup in consumer spending in January. Retail sales rose 1.8% for the month, the largest monthly increase since May 2024 and a result that exceeded market expectations. In addition, the Office for National Statistics reported a larger-than-expected budget surplus for January.
Some market participants interpreted the stronger-than-expected fiscal outturn as a sign the government could reduce upcoming bond issuance, which would be a technical positive for gilts. At the same time, analysts continue to debate long-term fiscal sustainability, meaning the implication for sovereign debt issuance remains contested.
Even with robust retail data, yields on British sovereign debt moved lower on Friday. Market pricing increasingly reflects expectations for lower interest rates, even as recent indicators point to a recovery after the stagnation seen at the end of last year.
On the day, gilt yields fell across the curve: the 5-year note settled near 3.7800%, the 10-year yield declined to 4.3500% and the 30-year yield eased to 5.147%. The British pound weakened against the US dollar, trading down to 1.3464, while the FTSE 100 rose 0.6% to 10,686.60.
ING's outlook ties together central bank expectations, political considerations and risk sentiment as key inputs shaping near-term currency moves. The bank's baseline of EUR/GBP moving past 0.880 reflects its view that internal pressures on sterling will outweigh factors supporting the currency in the coming months.