ING Group expects the euro to rise against the British pound as the Bank of England is imminent to cut interest rates

Investing.com - ING Group stated on Friday that the euro is expected to strengthen against the pound in the short term, with EUR/GBP expected to break above 0.880 due to domestic pressures weighing on the pound.

The bank anticipates the Bank of England will cut interest rates at the March meeting, currently priced in by the market at 20 basis points. ING Group forecasts another rate cut in June, although the market assigns only a 40% probability to this move.

ING Group believes that current geopolitical risks and fragile risk sentiment should have a greater impact on the pound than on the euro. Domestic dynamics remain the main factors expected to pressure the pound.

The bank also noted that political risk is another major concern facing the pound. ING Group remains optimistic about the short-term upside potential of EUR/GBP. In its current assessment, the euro is less favored than the pound, but the bank maintains its baseline forecast that EUR/GBP will break above 0.880.

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Additionally, official data on Friday showed that retail sales surged 1.8% in January, marking the largest monthly increase since May 2024 and significantly exceeding market expectations.

Furthermore, the UK Office for National Statistics (ONS) reported that January’s budget surplus exceeded expectations. This fiscal development has led some market participants to speculate that the government may reduce bond issuance in the coming months, providing a technical boost to UK bonds, although long-term fiscal sustainability remains a topic of debate among analysts.

Despite strong consumer spending data, UK sovereign bond yields fell on Friday. Investors seem to be doubling down on bets that interest rates will decline, even as new economic indicators show that the economy is strengthening after stalling at the end of last year.

UK bond yields generally declined, with the 5-year yield steady around 3.7800%, the 10-year yield dropping to 4.3500%, and the 30-year yield falling to 5.147%. The pound against the dollar also declined to 1.3464, while the FTSE 100 rose 0.6% to 10,686.60 points.

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