The Pound Sterling (GBP) faced renewed selling pressure this week, with the GBP/EUR exchange rate tumbling to three-month lows near 1.1440. Analysts at MUFG remain bearish on the UK currency, maintaining their forecast of a further decline to 1.13 in the coming months.
ECB Rate Hold Strengthens the Euro
The European Central Bank (ECB) kept interest rates steady at 2.00% in its latest meeting, with sources indicating that rates are likely to remain unchanged in September (Reuters). This shift in expectations has bolstered the Euro (EUR), adding to Sterling’s struggles.
Bank of England Rate Cut Expectations Weigh on GBP
Markets are pricing in a near-certain interest rate cut by the Bank of England (BoE) in early August, a move that MUFG and other major investment banks fully anticipate (Bloomberg. The latest UK PMI data revealed:
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Slowing services-sector growth
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Further job losses
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Rising cost pressures
With labor market weakness persisting, MUFG expects multiple BoE rate cuts this year, eroding the Pound’s yield advantage over the Euro.
Inflation and Fiscal Risks Compound Sterling’s Woes
Despite signs of sticky inflation, the BoE’s dovish tilt could further damage GBP sentiment. Additionally, MUFG highlights underlying fiscal vulnerabilities, with potential tax hikes in the Autumn Budget likely to suppress consumer spending and business investment (Financial Times.
Key Takeaways for GBP/EUR Outlook
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Bearish GBP forecast (1.13 target) as BoE easing cycle begins
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ECB’s steady stance supports EUR
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UK fiscal concerns add downward pressure
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Persistent inflation may not save Sterling if rate cuts proceed
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