The Bank of England (BoE) is continuing its cycle of interest rate hikes, which should support the pound for the time being. However, in the course of the year, the EUR should then benefit from the expectation that the European Central Bank (ECB) will also initiate the turnaround in monetary policy, as reported by Commerzbank.

ECB lift-off should support EUR/GBP

“In the short term, the pound should remain supported against the EUR since the Bank of England (BoE) has already started its rate hike cycle in December. Further rate hikes will follow this year. In the course of the year, however, the EUR should benefit from the expectation that the ECB will raise interest rates soon.”

“Since the ECB is likely to pause after three interest rate hikes, while the BoE will tighten its monetary policy further in 2023, the pound should be able to gain again against the EUR in 2023.”

“Against the USD, we expect more or less a sideways movement this year, as both the BoE and the Fed will become more restrictive.”