Eur/gbp Downside to Continue

Eur/gbp Downside to Continue


Quotes from Barclays Capital:
-We expect EUR/GBP to depreciate based on relative monetary policy expectations in the EA and UK. We believe there are two channels through which this will work: the knee-jerk adjustment to the policy decision in both countries; and changes to expectations about the future policy response of the ECB and MPC. According to polls, the market expects both the ECB and MPC to loosen monetary policy today. We agree.
-But we look for the ECB to loosen by more than the consensus, with the main policy rate cut by 50bps and the discount rate pushed close to 0%. This will weigh on the EUR. In contrast, we expect the MPC to extend the asset purchase programme by 50bn to £325bn. Although this is in line with the consensus, at the margin we think more participants will be disappointed by the amount of loosening in the UK than surprised. This suggests that risks for GBP are slightly to the upside. Consequently, we expect EUR/GBP to move lower on these announcements.

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