Rabobank’s FX Strategy team has expressed the view that current market expectations for up to three Bank of England (BoE) interest rate hikes over the next year are excessive, citing a loosening UK labour market and lacklustre economic growth as key factors. According to Rabobank, the market initially shifted from anticipating BoE rate cuts to pricing in as many as four rate hikes at the start of the Iran war, but still currently sees the risk of three hikes over a one-year horizon [1].
Rabobank argues that the UK labour market has been loosening in 2024, indicating increased spare capacity and a reduced risk of persistent inflation. As a result, the bank expects the market to reprice towards just one BoE rate move this year, which they believe would lead to a softer British pound (GBP) [1].
Based on these expectations, Rabobank’s central view is that the EUR/GBP cross is likely to creep higher over the next 9 to 12 months, as the repricing of BoE rate expectations supports upside for the euro against the pound [1].
No specific market reactions, analyst opinions beyond Rabobank’s, or additional forward-looking statements were provided in the article [1].
CONCLUSION
Rabobank anticipates that the EUR/GBP cross will trend higher over the coming 9 to 12 months, driven by expectations of fewer BoE rate hikes than currently priced by the market. The bank sees a softer GBP as likely if the market reprices towards just one BoE move this year.