Market expectations of a hawkish Bank of England policy seem excessive

LootboxPhobia · 2026-03-12T19:55:04+00:00

ING Analytics indicates that EUR/GBP is negatively correlated with oil prices, as markets are concerned that accelerating UK inflation will impact central bank policy. The pound faces downward pressure due to geopolitical tensions and rising oil prices. UBS, meanwhile, is bearish on sterling, with both EUR/GBP and GBP/USD targets revised lower.

LootboxPhobia

2026-03-12 19:55:04

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Investing.com - According to analysis by ING, EUR/GBP continues to show a negative correlation with oil prices, mainly due to market expectations that the UK faces more severe inflation issues and that Bank of England policies may be more significantly influenced by energy prices.

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ING expressed concerns that market expectations for the Bank of England to ease policy have become overly aggressive. Since the Iran conflict began, the two-year GBP swap rate has risen by 50 basis points, and no interest rate changes are expected before the end of the year.

ING believes that any positive news regarding a de-escalation could pose a significant upside risk for EUR/GBP.

ING’s valuation indicators suggest that unless the market seriously considers the possibility of a rate hike by the Bank of England, a drop below 0.860 would be excessive.

As of 12:09 GMT, the euro strengthened slightly against the pound, with EUR/GBP rising 0.05% to 0.8629, while the pound weakened against the dollar, with GBP/USD falling 0.15% to 1.3392.

Against the backdrop of escalating geopolitical tensions, the pound is under pressure, and after Iran attacked oil tankers, oil prices surged back above $100 per barrel, raising concerns over regional supply disruptions.

UBS strategists continue to hold a bearish view on the pound, setting the EUR/GBP target at 0.89 by the end of Q2 and GBP/USD at 1.31. The bank notes that the Middle East conflict and its impact on energy markets pose risks.

In a report on Wednesday, UBS stated that recent risks for the pound are heavily skewed to the downside. The bank’s Q1 EUR/GBP target of 0.88 may be difficult to achieve, as only three weeks remain in the quarter.

For GBP/USD, UBS set the Q1 end target at 1.33 and the Q2 end target at 1.31. These targets are consistent with the bank’s updated EUR/USD forecast of 1.16 for both periods.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.

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