The European Central Bank (ECB) would like a stronger Euro. If the shared currency strengthens, the British Pound will be the main victim, according to economists at ING.

EUR/GBP to find good demand under 0.87

“The ECB would clearly like a stronger Euro to help out with its battle against inflation. If the ECB is to be successful in getting the Euro higher, then the EUR will need to rally against those currencies with major weights in the trade-weighted Euro index. The biggest weights in this index are the USD (16%), the CN (14%) and then the GBP (12%).”

“Of the three, we would say that Sterling is the most vulnerable given that the Bank of England (BoE) is closer to ending its tightening cycle than the Fed and that the UK's large current account deficit leaves Sterling vulnerable in a global slowdown.”

“We suspect EUR/GBP finds good demand under 0.87 now and we remain happy with a 0.89 target for 1Q23.”