Recent economic statistics released in the UK reveal signs of strength, including a rise in November GDP surpassing forecasts and improved industrial output. Further encouraging indications come from the housing sector, where estate agents report heightened confidence in sales activity.
However, despite these promising metrics, currency analysts at ING maintain that the British pound, or sterling, is likely to continue its correction relative to the euro. This assessment is supported by a prevalent underweight positioning among asset managers in sterling assets, indicating potential for ongoing currency volatility.
ING's analysis suggests that the current support level of EUR/GBP at approximately 0.8645 to 0.8655 is at risk, with the possibility of the pair declining to around 0.8600 in the near term. This anticipated movement aligns with the possibility of an upside surprise in the forthcoming December UK Consumer Price Index data, set to be published next week.
Looking ahead, ING projects that the Bank of England may implement monetary easing earlier than markets currently price in, with rate cuts forecasted in March and June, rather than the expected April and December timelines. This outlook presents potential hedging opportunities for investors anticipating sterling weakness well before the middle of the year.
Overall, while UK economic data reflects resilience and potential for growth in several sectors including manufacturing and real estate, the foreign exchange market remains cautious. Investors and portfolio managers will be closely monitoring inflation reports and central bank policies in the coming months to navigate anticipated fluctuations in sterling value.