EURGBP:  Seasonal strength heading into the ECB meeting

Heading into the ECB rate meeting on Thursday this week a Reuters poll from last week shows 39 out of 69 economists surveyed are expecting the European Central bank to keep rates unchanged at 3.75%.  However 30 at the economists expect the ECB to increase rates by 25 basis points.  

Recent commentary from ECB’s central bankers has also been mixed. ECB’s Knot said last week that markets may under estimate a September hike, and ECB’s Kazmir says one more, likely last, interest rate hike is still needed. In contrast ECB is VSCO believe the ECB is close to the level of rates at which you can stop increasing the.  

So, the expectations are fairly evenly balance with short term interest rate markets favouring the chances of the ECB being on hold. However, the seasonal bias for the EURGBP is titled to the upside. 

Over the last 15 years, between September 15 and October 09, the EURGBP has gained 60% of the time with an average return of 1.10%. So, if we see a more hawkish decision, with the ECB hiking rates, will we see the EURGBP gain into the start of early October? 

Major Trade Risks: 
The major trade risks here is that the UK side of the trade could be volatile depending on the Bank of England’s rate path. Furthermore, the ECB may indicate a more dovish outlook by holding rates and signalling the end of the ECB’s hiking cycle.  

Remember don’t just trade it, Seasonax it!