Strategists at Rabobank point out that the change in the Bank of England’s language favours the doves, they see scope for further rate rises. They continue to expect poor United Kingdom fundamentals to be a drag on the British Pound.
Key quotes:
“The USD has found further traction on the back of the January US jobs report. That said, the single currency has still managed to climb against the beleaguered GBP, with the latter undermined by the market’s interpretation that the BoE may be even closer to peak policy rates. EUR/GBP continues to edge towards our 0.90 target. We maintain our forecast of EUR/USD1.06 on a 3 month view.”
“Weak productivity, low investment growth, high inflation, recession conditions (albeit at a less severe pace that previously signalled by the Bank), and a current account deficit are all likely to weigh on GBP this year. We continue to expect EUR/GBP to grind higher to 0.90 by the middle of the year and while we see scope for another move below GBP/USD 1.20 on a 3 month view.”
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The Pound Sterling has been on a downward trend in recent weeks, as relentless UK economic data has provided few bright sparks and the UK Government’s Brexit-driven policy tightening has continued to be a drag on the currency.
Analysts at Rabobank, a Dutch cooperative bank, have now commented on the Sterling’s recent movements and noted further downside potential in the Pound to Euro exchange rate, USD/GBP, and GBP/JPY. They have pointed to ‘poor UK fundamentals’ as the main drag on the currency, putting more distance between the pound and its peers.
Rabobank’s latest research shows that UK Gross Domestic Product (GDP) has been lagging that of France, Germany and the Eurozone in recent quarters. This places a considerable strain on the Pound, since it has had to bear the brunt of weak economic outlooks and dampen investor confidence in pound-denominated assets.
Commenting on the outlook for the EUR/GBP rate, the Rabobank analysts suggest that the Pound’s slide could continue, particularly if the UK fails to make any tangible progress in Brexit negotiations. They also note that economic data from the Eurozone is expected to be strong in Q4, which could put further pressure on the Sterling.
The British Pound remains in a precarious position as uncertainty surrounding Brexit continues to hold back the currency. With the UK set for a General Election on December 12th and the Pound’s future relationship with the EU still far from clear, it appears likely that the Sterling will remain weighed down in the near-term. With Rabobank’s analysis pointing to further downside in the EUR/GBP rate, there may be cause to remain sceptical of the British Pound’s prospects in the weeks and months ahead.
