ING analysts Chris Turner and Francesco Pesole note that a previous Sterling short squeeze had pushed EUR/GBP near 0.86, but UK politics and the Bank of England have turned the bias higher. Further pressure on Prime Minister Starmer around upcoming elections could hurt Sterling and Gilts. ING expects the BoE to cut rates to 3.50% in March, while a closer UK–EU relationship is seen as a bullish wild card for the Pound.

Sterling vulnerability supports cross higher

"A sterling short squeeze amongst the asset management community had dragged EUR/GBP close to 0.86 before politics and the BoE hit."

"Now the EUR/GBP bias is higher as we brace for further pressure on PM Starmer."

"Potential flashpoints are the performance of the Labour Party in a by-election on 26 February and local elections on 7 May."

"His departure and that of his Finance Minister, Rachel Reeves, would hit sterling and Gilts."

"In terms of the BoE trajectory, we think it will have enough evidence to cut rates to 3.50% on 19 March."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)