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.
“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.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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.