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Pound Sterling can ramp up gains against the Euro says a leading FX analyst.
Trade deals and a Bank of England decision have all gone the British Pound's way this week, handing the currency a five-day advance of 0.33% against the Euro.
The UK didn't win any major concessions from the U.S. as a new trade framework agreed by the two countries shows the U.S. maintains a flat 10% tariff, unchanged from the tariff rate announced by President Donald Trump on April 02.
However, the very fact that the U.S. is negotiating has been welcomed by investors, resulting in lower levels of market volatility, which traditionally favours the Pound-to-Euro exchange rate (GBP/EUR) and underpins four consecutive weekly gains.
Analysts say further gains are possible as the UK is poised to make strides towards improving trade relations with the EU, while the Bank of England's May decision and guidance confirm the Bank is not yet ready to abandon its cautious stance on interest rates.
"Having initially sold off on the 5-4 voting pattern today (two voting for no change, two voting for a 50bp rate cut), sterling has since rebounded on the view that BoE is not yet ready to accelerate its easing cycle," says Chris Turner, lead FX analyst at ING Bank.
Markets entered Thursday's events expecting the Bank to strike a more 'dovish' tone, whereby it commits to speeding up the pace it cuts interest rates, which would have weighed on the Pound.
Above: GBP/EUR at weekly intervals showing the steady grind higher from the lows that followed the April selloff.
In fact, such a 'dovish' turn was cited by many analysts we follow as being a major risk to GBP performance.
But a healthy degree of disagreement on the Bank's Monetary Policy Committee, owing to global and domestic economic uncertainty, means it cannot be accused of groupthink, which ultimately lets the Bank steer a steady route forward for UK markets.
Given this, ING thinks that the Pound can rise against the Euro "a little further."
"Helping that move over the next couple of weeks should be the run-up to the first UK-EU summit on 19 May. Here, leaders should sign a new Security and Defence Pact (SDP) and talk warmly about future deals regarding alignment on carbon trading and youth mobility," says Turner.
According to ING's analysis, Pound Sterling performs better on warmer UK-EU relations, which in this case could involve the Office for Budget Responsibility (OBR) scoring UK growth prospects higher this November – providing more fiscal headroom for UK Chancellor Rachel Reeves.
"A less dovish than expected BoE can only help this political support for the pound, and 0.8400 looks the EUR/GBP bias for this month," says Turner.
EUR/GBP at 0.84 gives a GBP/EUR conversion of 1.19.