MUFG Research recommends buying EUR/GBP as part of its Trade of the Week. They are targeting a price of 0.8850, with a stop loss at 0.8350. The current exchange rate is 0.8650. According to MUFG, the risks for the GBP are increasing, backed by recent stability in prices. The EUR/GBP rate has stayed above 0.8600 longer than it has since late 2023 or early 2024. The GBP recently weakened due to worries about the UK’s public finances. Possible tax hikes this autumn could impact both business and household spending, leading to slow growth in the third quarter. MUFG clearly anticipates the euro will strengthen against the pound in the short term. Their strategy of going long on EUR/GBP aims to benefit from further increases, targeting 0.8850. The stop at 0.8350 provides some leeway to avoid exiting early due to minor price changes. Currently, with the price at about 0.8650, this entry point is close to the market level and ready for action without needing a pullback. MUFG’s reasoning includes concerns about the UK’s fiscal situation. There is growing pressure on tax promises, discussions of possible higher taxes later this year, and investor unease. This uncertainty around future growth suggests higher taxes may lead households and businesses to cut back on spending, potentially leading to weaker recovery in the third quarter. This isn’t just guesswork—it reflects real hints from officials and declining economic indicators. Martin and his team at MUFG also point to price trends as key support for their view. The fact that EUR/GBP has remained above 0.8600 for a significant time indicates the market is reevaluating interest rate expectations alongside fiscal credibility. This stability in price hasn’t been seen since last year, which is notable. For those looking to trade in the short term, now is not the time to bet against the current trend. The price structure above 0.8600 remains strong. The suggested risk management strategy—with a generous stop loss below 0.8350—provides room for potential volatility, especially with upcoming UK data that could cause market shifts. The Bank of England may stay cautious on interest rates if political uncertainties and weak spending continue. All eyes will be on Bailey’s next comments for clues. Currently, data does not support buying into a rebound for the pound. Instead, the trend leans toward selling the pound rather than building up support. Recent UK reports have a bearish tone, and there’s no fresh optimism to change that. Simply cooling inflation hasn’t restored investor confidence, as real incomes remain stagnant and consumer demand is weaker than usual. In this environment, short-term futures suggest more risks for the sterling. Implied volatility is steady, making protective positions appealing. Traders in options might find better value in calls if they already hold long EUR/GBP positions. Even forward prices are slightly widening, hinting at anticipated euro strength going forward. Overall, the focus should be on where the information leads rather than hoping for a rebound. Holding a position in this direction appears to be well-supported for now.

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