Dovish ECB to weigh on EUR/GBP

After a volatile week for GBP crosses, this week will be relatively quiet on the data front and, as such, the catalyst for a continuation of last week's EUR/GBP downtrend would likely be the ECB. 

A dovish ECB press conference or a market surprise with fresh policy stimulus would likely add downward pressure to EUR/GBP, which remains elevated, according to the FFV model. 

"Over the medium term, the GBP is expected to outperform the EUR, due to a significant growth differential, but domestic headwinds should push cable lower over the coming year", says Barclays. 

UK economic growth remains relatively robust, but fiscal consolidation will likely weigh on UK activity in an environment of surprisingly low inflation and the underpriced impending EU referendum.

"On the data front, PSNBx is likely to print at £10.0bn, as September is typically characterized by strong borrowing. Therefore, PSNB is expected to come in at £9.2bn. The tax receipts recovery should be watched, as well as the effect of the spending cuts announced in the 2015 budget", added Barclays. 

Moreover, retail sales are likely to pick up somewhat in September, with sales volumes increasing 4.7% y/y (0.3% m/m). The risks are tilted to the upside, based on the strong signal sent by the Barclaycard Spend Trend Index.