In view of high inflation, the Bank of England (BoE) remains too cautious. This should weigh on the pound. Economists at Commerzbank expect the GBP to weaken against the EUR in the coming quarters.
EUR should benefit from the ECB's monetary policy turnaround
“Since inflation will probably rise further and the labor market is very tight, further monetary tightening is necessary in the short term. We now also expect more rate hikes. However, the BoE is still likely to act too cautiously when it comes to fighting inflation. This, coupled with the risk of significant economic slowdown, will weigh on the pound.”
“We assume that the ECB will also initiate its monetary policy turnaround in July. This should support EUR/GBP.”
“We now also expect GBP to weaken further against EUR next year. The BoE is likely to pause, while the ECB will tighten for a bit longer. At the same time, inflation in the UK is unlikely to fall as quickly, while at the same time the economy should weaken significantly.”