We continue to see scope for EUR/GBP to edge lower to the 0.8400 level on a six-month view. Our forecast that the BoE is more likely to disappoint market doves than encourage them at Thursday’s policy meeting supports this view. 

Despite GBP’s strong start to the year, CFTC speculators’ positioning data suggest that net longs are still moderately sized. This suggests there is scope for upside in GBP on a hawkish takeaway from the BoE. By contrast, the market has remained resolutely long EUR since the end of 2022 despite the flow of soft data releases from Germany.

It is our view that the ECB will keep policy on hold until it has greater certainty that wage inflation in the Eurozone has moderated. However, market interpretations that the ECB adopted a slightly more dovish position at its January policy meeting is likely to increase the EUR’s sensitivity to soft economic data in the Eurozone and encourage a reduction in net long positions.