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Rabobank flags political and BoE risks for GBP, EUR/GBP seen higher

Rabobank’s strategist expects the BoE to stay steady and projects EUR/GBP around 0.87 over three months, but warns Labour Party tensions could add GBP volatility into autumn.

Reported · Written up by our desk · Major Pairs

Rabobank’s Senior FX Strategist Jane Foley outlined how political developments and the Bank of England’s (BoE) next decision could influence the British pound outlook.

Foley pointed to UK welfare reform as a key swing factor, noting shifting voter polls and intra-Labour tensions, and said Burnham’s fiscal choices could affect gilts alongside GBP. She added that Labour MPs have warned the prime minister against welfare reform involving punitive cuts.

On policy expectations, Foley said with soft UK inflation and higher oil prices, she expects BoE policy to be steady. She also described signs of fiscal restraint as supportive for gilts and GBP.

For positioning, Foley said EUR/GBP is biased higher toward 0.87 over a three-month horizon, but warned that political friction remains possible, which could keep volatility elevated for the pound into the autumn.

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