U.K. pound outlook remains positive in short term, says ING

ING maintains a positive short-term outlook for the British pound, driven by hawkish Bank of England rate expectations, which could see EUR/GBP test 0.860 and GBP/USD inevitably break above 1.35. However, the bank's longer-term view is less optimistic, anticipating a potential dovish reassessment of BoE rate cuts later in autumn, while noting minimal FX impact from French political developments.

Analysis

According to analysis from ING, the British pound maintains a positive short-term outlook primarily driven by a hawkish repricing of Bank of England rate expectations. This fundamental support is creating downside pressure on the EUR/GBP pair, for which ING suggests a test of the 0.860 level remains a distinct possibility. The bank's conviction extends to the GBP/USD pair, where a structural break above the 1.35 level is viewed as 'a matter of when rather than if.' However, this near-term optimism is contrasted with a less sanguine longer-term view. ING flags a potential dovish reassessment of BoE rate cuts later in the autumn as a key risk factor that could negatively affect sterling's performance. Notably, the report indicates that ongoing political developments in France are currently having a minimal impact on foreign exchange markets, reinforcing the idea that the pound's trajectory is presently dominated by domestic monetary policy expectations.

Key Decisions for Investors

• Investors with a short-term horizon might consider tactical long positions in GBP against the EUR, targeting the 0.860 level for EUR/GBP as forecast, while leveraging the current momentum from hawkish Bank of England expectations.
• It is critical to monitor Bank of England communications and economic data leading into the autumn, as a dovish pivot on rate cuts is the primary identified risk that could reverse the pound's positive trend.
• For longer-term portfolios, ING's view of an 'inevitable' break above 1.35 in GBP/USD suggests holding or strategically accumulating sterling positions, but requires patience given the unspecified timeline for this catalyst.