Sterling Faces Correction Despite Positive UK Economic Data

ING Foresees Sterling Weakness Despite Economic Uptick

Despite a series of positive UK economic reports, analysts from ING suggest the British pound's correction against the euro, which started in November, may not be over. The analysis points to market positioning and upcoming inflation data as key factors for potential sterling weakness.

Current Economic Landscape

The United Kingdom recently released better-than-expected economic figures, including a rise in monthly GDP for November and stronger industrial production. Additionally, the housing market is showing signs of recovery, with estate agents reporting increased optimism about future sales.

These positive indicators emerge while asset managers continue to hold significant underweight positions in sterling, creating a dynamic environment for the currency.

Market Analysis and Outlook

ING analysts believe the sterling correction has further to run, anticipating potential upside surprises in the UK's December CPI data. The bank identifies the EUR/GBP support level at 0.8645/55 as vulnerable, with a growing risk of a breakdown toward 0.8600.

Furthermore, ING's forecast for monetary policy diverges from current market pricing. While markets expect Bank of England rate cuts in April and December, ING anticipates an earlier easing cycle with cuts in March and June.

Concluding Outlook

Traders will be closely monitoring next week's inflation data, which could be a catalyst for the next move in EUR/GBP. The divergence between positive economic data and bearish technical forecasts highlights the complex factors influencing sterling's value.

FAQ

Q: Why might sterling weaken despite good UK economic data?
A: Analysts point to significant underweight positions by asset managers and potential inflation surprises, suggesting the positive news may already be priced in.

Q: What is ING's forecast for the EUR/GBP exchange rate?
A: ING suggests the EUR/GBP pair could break down to the 0.8600 level, viewing the current 0.8645/55 support as vulnerable.

Source

Source: Investing.com