ING’s Chris Turner expects the Bank of England (BoE) to avoid tightening this year, with only modest rate hikes priced by markets. Given a hawkish European Central Bank and fragile equity sentiment, he anticipates EUR/GBP moving back toward 0.8680, while GBP/USD could test 1.3300 with outside risk to 1.3200 in a risk-off environment for the Pound.

BoE caution weighs on Pound outlook

"It looks as though the Bank of England will try to avoid tightening this year. The market expects relatively little of the Bank this summer, but does price 21bp of tightening at the September meeting."

"Friday's release of inflation expectations data amongst the corporate community also gives the BoE some confidence that second-round inflation effects are less likely."

"In theory, EUR/GBP should be trading higher if the BoE is dragging its feet on tightening at a time when the ECB is about to hike and the data is prompting a rethink on the Fed's position."

"Equally, sterling is generally seen as a pro-risk currency with a large financial sector, meaning that it generally underperforms in a risk-off environment."

"Given what should be a hawkish ECB meeting this week and a vulnerable equity environment ahead of large forthcoming supply, we favour EUR/GBP making a move back to 0.8680, while GBP/USD can test 1.3300 and has outside risk to 1.3200 this week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)