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Forex: EURGBP To Falter On ECB, BoE Policy

David Song

With the European Central Bank (ECB) and Bank of England (BoE) interest rate decisions quickly approaching, the lack of momentum to clear the previous month’s high may produce range-bound prices in the EURGBP, and we will looking for an opportunity to sell the pair amid the deviation in the policy outlook. Although both the ECB and BoE are widely expected to maintain their current policy in December, we anticipate the Governing Council to strike a more dovish tone for monetary policy as the deepening recession in the euro-area threatens price stability. In turn, ECB President Mario Draghi may show a greater willingness to ease monetary policy further, and we will look for hints of another rate cut as the debt crisis continues to drag on the real economy. In contrast, the BoE appears to be slowly moving away from its easing cycle as inflation stubbornly holds above the 2% target, and the Monetary Policy Committee may switch gears in 2013 as the U.K. emerges from the double-dip recession.

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