UBS Expects Decline in Upcoming Data for EUR/JPY and EUR/GBP

UBS has emphasized the importance of upcoming economic indicators rather than the recent European Central Bank (ECB) meeting when sharing its forecasts on the potential trajectory of the Euro. The market is pricing in at least a 150 basis point rate cut from the ECB within the next 12 months, but UBS indicates that ECB President Christine Lagarde's press conference could create volatility, particularly if it addresses the risks of future U.S. tariffs or negative economic impacts in France.

UBS anticipates that stronger signals for the direction of the Euro are likely to come from data later in December rather than from the recent ECB meeting. Specifically, the preliminary PMI data set for release on December 16 and France's Insee survey scheduled for December 19 could influence market expectations.

Weakness in these forward-looking indicators may lead to a decline in future inflation expectations and potentially more aggressive market bets on ECB rate cuts. The firm maintains a short position in EURJPY, reflecting its expectation of a decline in the Euro against the Japanese Yen. UBS also sustains a consistent bearish outlook for EURGBP, seeing no reason to deviate from market expectations of three 25 basis point cuts by the Bank of England in 2025.

UBS states that inflation pressures in the UK economy could constrain the ability to implement rate cuts, unless there is a significant external shock like a trade war. The firm's long-term target for EURGBP remains at 0.8200, while also acknowledging the possibility of the currency pair falling below this level.