EUR/GBP takes pleasure in more optimism around a de-escalation in Ukraine – ING

According to economists at ING, the pound is not the main beneficiary of diplomatic optimism. Therefore, the EUR/GBP pair should profit from encouraging developments towards some de-escalation of the Ukraine conflict.

GBP/USD to enjoy further gains above 1.32

“Given the euro's higher exposure to the Ukraine conflict compared to the pound, encouraging developments towards some de-escalation are a net-positive for EUR/GBP.”

“EUR/GBP is approximately 1% overvalued according to our short-term fair value model, which suggests the euro is starting to build a positive risk premium to the Ukraine conflict, as policy divergence (among other factors) still argues in favour of a weaker EUR/GBP.”

“Looking at cable, we might see a break above 1.3200 today, but further strength in the pair may well be challenged by investors’ reluctance to let go of all their defensive US dollar positions given the still elevated uncertainty on the geopolitical and market liquidity conditions.”