EUR/GBP to move noisily amid confusing maelstrom for the economic outlook – Credit Suisse

The pound stands out among the crowd as a currency with real reasons to move noisily – and to keep on moving too. Economists at Credit Suisse expect noise to continue for weeks to come even if EUR/GBP eventually drifts towards their 0.8450 target.

Taking a pounding

“On the GBP-positive side, there are ongoing signs of UK labour market shortages and corresponding upward wage pressure. On the other hand, these highly publicized shortages have reminded markets that the UK could pay a growth price for high input costs and supply-chain difficulties. The net result of these contrary forces could be many months of push and pull, lots of ‘gamma’ but with the EUR/GBP cross ultimately not moving especially far from where we are now.” 

“Our base case target of EUR/GBP 0.8450 is probably closer to ‘heaven’ (hopes for BoE rate hikes allow for persistent rate support) than ‘hell’ (EUR/GBP explodes to 0.9000 where it started 2021 due to the negatives discussed above dominating). But we acknowledge that GBP now needs a solid risk premium, and we have given up on Q3 expectations for a move to EUR/GBP 0.8300.”