Short & Shallow Look Below GBP0.8700

EUR/GBP looked below GBP0.8700 in early London dealing, printing as low as GBP0.8696 in the process, although the downtick in global equities and hawkish ECB speak limited follow through, with spot last back to GBP0.8710

• Cost of living pressures (albeit with energy prices well shy of their well-documented, recent peaks) and the political backdrop continue to garner the bulk of the domestic headlines in the UK, while terminal BoE pricing hovers in the familiar 4.90-5.00% window at typing.
• In terms of sell-side views, the weekend saw Goldman Sachs highlight that they “have been arguing for some time that Sterling’s fundamentals have improved, and markets were not fully appreciating that… We are now taking an outright constructive stance. Essentially, we think that the same factors that acted as headwinds on Sterling in 2022 - mostly natural gas prices and the relative stance of BoE policy - have turned to tailwinds… even if the BoE remains in the “reluctant hiker” camp, most other G10 central banks have now joined that group as well.” As a result, they issued a short EUR/GBP recommendation in EUR/GBP late on Friday, targeting a move to GBP0.86 with a stop set at GBP0.88.
• Technically, we have noted that EUR/GBP maintains a bearish tone. The cross has pierced key support at GBP0.8719, the Mar 15 low. Bears now look to GBP0.8691, the Dec 19 2022 low (which wasn’t quite challenged this morning). On the upside, initial firm resistance is seen at GBP0.8835, the May 3 high. A break there is needed to ease the bearish threat.