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Pound pressured against euro as BoE tightening outlook fades
Rabobank links GBP weakness to reduced Bank of England tightening expectations and expects downside pressure into the October 28 budget, even as markets still price in further hikes.
Rabobank’s Senior FX Strategist Jane Foley said the British pound has been pressured versus the euro, tying the move to a shift lower in expectations for additional Bank of England tightening.
Foley pointed to reduced tightening expectations and upcoming political and fiscal developments, noting fiscal flexibility ahead of the October 28 budget and warning that market pricing for BoE rate hikes may still be too high.
She also cited limited UK parliamentary activity during the summer recession, saying political news flow is likely to be sparse until September, while risk builds as the budget approaches.
Rabobank prefers buying EUR/GBP on dips, targeting the 0.8550 area, and said a break above the recent high near 0.8588 could open further upside potential.