Rabobank Senior FX Strategist Jane Foley has highlighted a shift in the EUR/GBP outlook, noting that while the currency pair has recently traded with a downside bias, this trend is expected to fade as spring progresses. Foley anticipates a modest upside for EUR/GBP, projecting a gradual move higher towards 0.88 into the autumn, driven by UK growth concerns, political risks, and limited Bank of England (BoE) tightening [1].
Foley points out that since the start of the month, EUR/GBP has been trading in a narrow range with a downside bias, but she expects this to reverse, recommending buying dips in EUR/GBP, particularly ahead of the May elections in England, Wales, and Scotland. She notes that the downgrade in UK economic prospects poses additional challenges for the Labour party and could increase the likelihood of a leadership challenge for Prime Minister Starmer if the party performs poorly in the elections. This political uncertainty is likely to deter speculators from holding long GBP positions into next month [1].
Market expectations for further rate hikes from both the European Central Bank (ECB) and the BoE have moderated compared to March, with less action now implied by market rates. Foley adds that weak UK GDP data could further dampen BoE rate hike speculation, potentially undermining the pound's value, especially as optimism grows that the Middle East conflict's inflationary impact may not reach worst-case scenarios [1].
CONCLUSION
Rabobank expects the downside bias in EUR/GBP to fade, forecasting a modest move higher towards 0.88 into autumn due to UK economic and political risks. Market participants are likely to remain cautious on GBP, especially ahead of the May elections and amid softer UK growth data. The outlook suggests limited BoE tightening and continued vulnerability for the pound.