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Pound to be supported despite BoE rate inaction, Rabobank says
Rabobank expects the EUR/GBP rate to climb toward 0.87 over a three month horizon, citing UK market optimism tempered by fiscal constraints.
Rabobank’s Senior FX Strategist Jane Foley said the British pound has been holding up strongly despite the Bank of England not delivering any interest rate hikes this year. The firm noted GBP has been the second best performing G10 currency over the past three months, supported by a rebound in UK market pricing after the start of the Iran war, even as rate hike expectations have fallen from their peak.
The strategist linked the pound’s resilience to market optimism around UK prime minister in waiting Burnham, including reports that he may choose a right-leaning Labour chancellor. Rabobank said a less leftward chancellor choice could ease pressure on UK gilts and help GBP maintain a so called honeymoon period.
At the same time, Rabobank cautioned that fiscal constraints and lingering political scepticism could limit how long that optimism lasts. The team said it is still unclear how Burnham intends to fund his agenda, and suggested the market will be closely watching fiscal news, especially as the honeymoon period may be harder to sustain into autumn.
For the currency outlook, Rabobank projected EUR/GBP could rise toward 0.87 over a three month horizon, reflecting its view that the pound can remain supported even without BoE hikes.