UBS pointed out that the BoE’s decision to cut rates in August was a narrow one, with a 5 to 4 vote among board members, suggesting future rate cuts could be gradual. The next rate cut is not anticipated until the BoE’s November meeting.
It highlighted a key difference between the two central banks: UK yields are approximately 1 percentage point higher than those in the Eurozone, which gives the British pound a carry advantage.
UBS expects this yield gap to continue over the forecast horizon, leading to a stronger pound relative to the euro in the coming quarters. However, the potential for the BoE to accelerate rate cuts prevents UBS from predicting an even lower EUR/GBP rate.
In terms of investment considerations, UBS forecasts the EUR/GBP to remain relatively rangebound with only a slightly lower spot rate expected in the near future. The GBP is seen to have some advantage, barring any significant policy changes.
UBS outlines the boundaries for the EUR/GBP, expecting it to stay within the 0.835 to 0.875 range, a bracket it has maintained over the past 12 months.
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