UBS Bank indicated on Tuesday a stable outlook for an average With a slight bearish bias for the pair, the stability is attributed to similar monetary policy cycles between the Bank of England and the European Central Bank.
UBS noted that the Bank of England’s decision to cut interest rates in August was narrow, with five members voting against four, suggesting that future rate cuts could be gradual. The next rate cut is not expected before the Bank of England’s November meeting.
The move highlighted a key difference between the two central banks: yields in the UK are about one percentage point higher than those in the eurozone, giving sterling a borrowing advantage.
UBS expects this yield gap to persist over the forecast horizon, leading to a stronger pound versus the euro in the coming quarters. However, the possibility of the Bank of England accelerating rate cuts prevents UBS from forecasting a lower rate for the EUR/GBP pair.
In terms of investment considerations, UBS expects the EUR/GBP pair to remain in a relatively narrow range with a slight decline in spot interest rates expected in the near future. Sterling is seen as having some upside, barring any major policy changes.
UBS has set the EUR/GBP range, expecting it to remain within the 0.835 to 0.875 range, which it has maintained for the past 12 months.
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