The bank expects sterling weakness as Bank of England tightening bets are viewed as overly aggressive amid low volatility.
EUR/GBP has retreated to the 0.8550-0.8560 range as the euro’s earlier premium fades and bond markets stabilize. ING attributes the move to reduced volatility and expects the pair to track short-term rate differentials closely in the near term.
With a quiet UK economic calendar ahead, the pair may trade in a narrow range. However, ING maintains a bullish view on EUR/GBP, targeting 0.870 in the coming months as it sees current BoE rate expectations as too hawkish.
The outlook hinges on a dovish repricing of sterling front-end rates, which could weigh on the pound against the euro.