UBS: EUR/GBP
We continue to favor the GBP over the EUR. We expect the BoE to start its hiking cycle next week, while UK data continue to beat expectations. Strongly short GBP positioning leaves scope for further sterling gains, while GBP carry remains more attractive. Recent EUR weakness looks advanced. Concerns about France’s fiscal outlook have weighed on the euro, but we see room for some recovery if France succeeds in passing a budget by year-end. We expect the next ECB hike to be in December, which is already almost fully priced into markets. We expect EURGBP to stay around 0.84. Although a recovery in the broader euro should come eventually, sterling’s yield advantage and a more supportive near-term economic and political backdrop continues to favor the GBP, particularly on a total-return basis.
We continue to favor the GBP over the EUR. We expect the BoE to start its hiking cycle next week, while UK data continue to beat expectations. Strongly short GBP positioning leaves scope for further sterling gains, while GBP carry remains more attractive. Recent EUR weakness looks advanced.
Concerns about France’s fiscal outlook have weighed on the euro, but we see room for some recovery if France succeeds in passing a budget by year-end. We expect the next ECB hike to be in December, which is already almost fully priced into markets. We expect EURGBP to stay around 0.84. Although a recovery in the broader euro should come eventually, sterling’s yield advantage and a more supportive near-term economic and political backdrop continues to favor the GBP, particularly on a total-return basis.