UBS Analysis: Stable Outlook for EUR/GBP with Carry Advantage for GBP
UBS, the renowned financial institution, has recently released a report indicating a stable outlook for the EUR/GBP exchange rate, with a slight downward bias. This stability is attributed to the similarities in monetary policy cycles between the Bank of England (BoE) and the European Central Bank (ECB).
The report highlights that the BoE's decision to cut rates in August was a close call, with a 5 to 4 vote among board members. This suggests that any future rate cuts by the BoE are likely to be gradual, with the next cut expected at the November meeting.
One key difference between the two central banks is the yield differential, with UK yields being approximately 1 percentage point higher than those in the Eurozone. This gives the British pound a carry advantage over the euro.
UBS predicts that this yield gap will persist in the coming quarters, leading to a stronger pound relative to the euro. However, the potential for the BoE to accelerate rate cuts could prevent a further decline in the EUR/GBP rate.
In terms of investment considerations, UBS forecasts the EUR/GBP to remain relatively rangebound, with only a slight decrease in the spot rate expected in the near future. The GBP is expected to maintain its advantage, unless there are significant policy changes.
UBS has outlined the boundaries for the EUR/GBP, expecting it to stay within the 0.835 to 0.875 range, a range that has been consistent over the past year.
In conclusion, investors can expect a stable outlook for the EUR/GBP exchange rate, with the British pound holding a carry advantage over the euro. This analysis provides valuable insights for those looking to make informed decisions in the foreign exchange market.