Rabobank's Senior FX Strategist Jane Foley has highlighted recent weakness in the British Pound (GBP) against the Euro (EUR), attributing this trend to reduced expectations for Bank of England (BoE) tightening and ongoing political developments under UK Prime Minister Burnham [1]. Foley notes that while the pound rallied against the euro from late June into early July, this move reversed at the start of last month, with the EUR/GBP pair trading sideways in recent sessions [1].
With the UK parliament in recess until early September, political news is expected to be limited. However, emerging details about the forthcoming October 28 budget are already influencing market sentiment, potentially setting up both the gilts market and the pound for increased volatility as autumn approaches [1]. Foley warns that the upcoming budget could cast a shadow over the pound post-summer, especially as markets may still be overestimating the likelihood of further BoE rate hikes this year [1].
Rabobank believes that current market pricing for a BoE rate hike by year-end is too aggressive and anticipates a re-pricing towards steady policy. This, combined with budget-related nervousness, suggests further downside pressure on the pound as summer ends [1]. Foley recommends buying EUR/GBP on dips to the 0.8550 area, and notes that a break above the recent high of 0.8588 could increase upside potential for the pair [1].
CONCLUSION
Rabobank expects the British Pound to face further pressure against the Euro due to overestimated BoE rate hike expectations and uncertainty surrounding the upcoming budget. The firm advises positioning for EUR/GBP gains, anticipating increased volatility for the pound into the autumn.