HSBC Issue Long EUR/GBP Recommendation

HSBC suggest that EUR/GBP “has diverged to the low side relative to rate differentials. Part of this divergence has been the pull of stronger risk appetite, which tends to exert a more powerful positive force on GBP than on EUR. Our multi-asset team is looking for a pull-back in risk sentiment in the near term, and the upcoming ECB and BoE meetings could provide further catalysts for EUR/GBP to retrace higher.”

• “This week's ECB meeting has little potential for fireworks Various policy makers have pushed back on market pricing by noting that more dovish expectations can complicate the path to lower inflation, suggesting little desire for an explicitly dovish signal at this stage.”
• “The BoE February meeting should be more interesting. The updated inflation forecasts should see a downward revision, with less of an upside skew. The big drop in December retail sales raises the risk of the UK having finished 2023 in recession, while downside surprises on wages could also remove the hawkish bias of some MPC members. We are expecting a much more dovish vote split. The three votes to hike in December will likely shift to holds, while there could be a vote for a cut.”
• As a result they initiated a long EUR/GBP trade idea at GBP0.8550 with a target of GBP0.8710 and a stop set at GBP0.8480.