OCBC strategists cite OECD warnings and UK fiscal constraints as catalysts for a potential EUR/GBP rebound to 0.87.
The British Pound’s recent strength against the Euro appears overextended as markets price in fiscal discipline from the UK’s new government. OCBC strategists note EUR/GBP has fallen to a one-year low but expect a recovery toward 0.87 in coming months, reflecting broader range-bound GBP expectations.
Concerns over UK fiscal constraints, including high public debt and rising healthcare costs, were underscored by the OECD. The agency warned of limited fiscal flexibility, complicating plans for higher defense spending and reversing austerity measures. Markets had rallied on reports of a fiscally conservative Chancellor appointment.
While the Bank of England remains the least likely among major central banks to hike rates further, risks of ECB tightening persist due to energy price gains. OCBC views the GBP’s recent overshoot as unsustainable amid these constraints.