TS Lombard Sees ECB 'Hawkish' Stance Boosting Euro Against Pound

TS Lombard analysts are advising to sell the pound against the euro ahead of the European Central Bank's (ECB) policy decision on Thursday. The ECB is expected to raise interest rates again, and according to TS Lombard, it has more room to hike rates than the Bank of England.

Daniel Von Ahlen, an analyst at TS Lombard, says: 'We like long EUR/GBP as the ECB has more room to hike rates than does the BoE.' The current pound-to-euro exchange rate is 1.1642, down from a July peak of 1.1820.

The Bank of England's Governor Andrew Bailey on Tuesday pushed back on market assumptions that it must raise rates on three occasions in the coming months. Von Ahlen thinks this path for the BoE is 'too aggressive' and believes there is a downside risk if the market's expectations of the Bank of England's rate path are not met.

The ECB's hawkish stance, combined with the strong domestic labour market, euro area wage growth, GDP growth, and German capex orders, make it more likely for the ECB to meet rate market expectations. This divergence in central bank policy could have significant implications for the pound-to-euro exchange rate.