FOREX: Analysts Firm EURGBP Upside Risk View, More Cautious vs. USD

With the market volatility this week, sell-side have pointed out the sensitivities of GBP to bond markets, but have generally stuck to their pre-existing views for GBP. Most analysts highlight the upside risks to EURGBP, but remain far more cautious on arguing for GBPUSD lower: 

• HSBC see GBP finding support on today's Budget date announcement, but see the government's ability to meet budget targets as under scrutiny. They expect GBP to be sensitive to Budget speculation in the near-term, but think US factors will eventually dominate. As such, they think GBP weakness is best played via EURGBP.
• ING see the reaction to the Gilt selloff as "a bit overblown". They take a conservative view and don’t expect the pound to fall much further on gilt moves alone. While they're not optimistic on GBP, they think EUR/GBP belongs below 0.870.
• MUFG do not expect any crisis scenario in the UK, but the risks from fiscal uncertainty will persist into the budget later in the year and in that scenario, and assume GBP underperformance will continue. They see scope for further EUR/GBP gains ahead – 0.8769 is the recent intra-day high which they see being broken.
• Natixis see persistent GBP pressure as possibly resulting in the BoE being on hold through the rest of 2025 - although still see 2 x 25bps cuts in this easing cycle (at a potentially slower pace).
• Rabobank write that there is potential for the FX rate to be particularly sensitive to bad fundamental news given the sizeable current account deficit, and expect GBP to remain on the back foot. They continue to expect EUR/GBP to grind higher "in the months ahead" and see scope for GBP/USD to dip to 1.33 on a 1-3 month view. On the budget, they write that any absence of spending cuts could ensure Gilt jitters, and enhance vulnerability of GBP.
• SocGen take a broader view, but see GBP as vulnerable, writing that GBP's Achilles Heel is the real terms strengthening in recent months/years. They see the upward trend in real GBP as unsustainable without GDP growth, meaning a longer-term view of EURGBP at parity within the next 5 years is increasingly likely.