Sterling’s recent rally has stalled, with EUR/GBP undervalued by 1.5% and BoE tightening bets seen as excessive.
The British pound’s rally has lost momentum, with EUR/GBP rebounding from a key support level near 0.850. The cross remains 1.5% undervalued against short-term fair value models, suggesting further upside for the euro.
Market expectations for 35 basis points of Bank of England tightening by year-end appear overly aggressive, adding downside risk to front-end GBP rates. Political uncertainty ahead of a UK government transition also weighs on sterling.
Analysts forecast EUR/GBP climbing to 0.870 by the end of summer as sterling’s overvaluation corrects.