Better-than-expected UK GDP and industrial production data have lifted confidence in sterling, exposing key support in EUR/GBP to a potential downside break, ING's FX analyst Chris Turner notes.

EUR/GBP vulnerable as markets reassess BoE rate-cut timing

"The UK delivered a positive set of data this morning, including a higher-than-expected monthly GDP figure for November and stronger than expected industrial production figures. A little earlier, we also had some positive news on the housing market, where estate agents are becoming a little more optimistic about sales."

"This is all happening at a time when asset managers are still running some reasonably large underweight positions in sterling. We think the sterling correction we have seen since November probably has a little further to run, especially with the risk of an upside surprise in December UK CPI released next week."

"Given the positioning, we think EUR/GBP support at 0.8645/55 looks vulnerable and the risks are building towards a breakdown to 0.8600 next week. Down there should be a good opportunity to hedge against sterling weakness in March, when we expect the Bank of England to deliver its next cut. For reference, money markets currently price the next cut in April and then again by December. We are looking at March and June for cuts."