British Pound: Sterling rally seen nearing exhaustion against Euro – OCBC

WikiBit|2026-07-20

Zusammenfassung:OCBC strategists note that the recent British pound rally appears overextended, driven by market expectations of fiscal discipline under a new UK government led by Andy Burnham. They highlight OECD warnings about significant fiscal constraints, including high public debt and rising healthcare costs, which could complicate efforts to balance increased defence spending with other priorities. While the pound has gained on reports that Shabana Mahmood may be appointed Chancellor, the strategists view the EUR/GBP drop to a one-year low as nearing exhaustion and expect a recovery toward 0.87 in coming months. They maintain a range-bound outlook for sterling, noting the Bank of England remains the least likely major central bank to hike rates, even as energy price gains raise ECB tightening risks.

OCBC strategists Sim Moh Siong and Christopher Wong argue recent British Pound (GBP) strength looks stretched as markets price in fiscal discipline from the new UK government under Andy Burnham. They note OECD warnings on United Kingdom (UK) fiscal constraints and expect EUR/GBP, which has fallen to a one‑year low, to recover towards 0.87 in coming months, consistent with a broadly range‑bound view on the Pound.

Rebound expected after overshoot

“GBP rallied on reports that Burnham is likely to appoint Shabana Mahmood as Chancellor rather than a candidate perceived as less fiscally conservative. We continue to expect a fiscally responsible shift to the left. However, balancing higher defence spending and reversing cuts to unprotected departments could prove challenging within the existing fiscal framework.”

“The OECD echoed these concerns in its latest UK outlook, stressing the importance of fiscal discipline. It highlighted high public debt, elevated interest costs, and rising healthcare and social care expenditures as key constraints on fiscal flexibility.”

“Against this backdrop, we believe the recent EUR/GBP correction, which has pushed the cross to its lowest level in a year, is nearing exhaustion. We continue to expect EUR/GBP to recover towards 0.87 in the coming months, consistent with our broader range-bound GBP view. While renewed energy price gains are increasing the risk of further ECB rate hikes, the Bank of England still appears the least likely among major central banks to deliver a rate hike.”

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