The British pound appears poised for further correction against the euro, even as recent UK economic data reveal positive trends, according to an analysis by ING. On Thursday, the UK released economic statistics that exceeded expectations, including a stronger monthly GDP figure for November and an uplift in industrial production. Complementing these indicators, the housing market displayed renewed confidence with estate agents reporting improved sales prospects.
Market dynamics, however, present a contrasting narrative. Asset managers persist in maintaining notable underweight positions in sterling, suggesting that the currency may continue to experience depreciation in value. ING's experts highlight that the decline in sterling, which commenced in November, likely has more room to persist.
This outlook is underpinned by the anticipation of potential upward surprises in the forthcoming UK Consumer Price Index (CPI) data scheduled for release next week. The current support level for EUR/GBP at 0.8645/55 is considered vulnerable, with analysts warning of an increased probability of a breakdown to the 0.8600 threshold. ING views this potential descent as an opportunity to employ hedging strategies against the anticipated sterling depreciation expected in March.
Additionally, the timing of Bank of England monetary policy adjustments factors into this prediction. While current market sentiment prices in rate reductions in April and December, ING projects that easing may occur earlier, with rate cuts likely in March and June instead.
The interplay between positive economic performance indicators and market positioning creates a complex environment for investors and sectors tied to currency fluctuations. Notably, the housing sector’s apparent optimism accompanies a backdrop of currency movements that may impact investment and borrowing costs.