Rabobank's Senior FX Strategist Jane Foley reports that the British Pound (GBP) is currently the top performing G10 currency on a one-day view, though its performance over longer periods is described as 'middling' [1]. Recent UK economic data has exceeded expectations, indicating that both the UK and Eurozone economies have shown resilience through Q2 and into the summer [1].
Foley expects the EUR/GBP currency pair to continue range trading in the coming weeks, with a mild upside bias for the euro later in the year. This outlook is attributed to fiscal realism and a reduced risk of Bank of England (BoE) rate hikes, which are expected to weigh on Sterling [1]. Rabobank's central view is that the Monetary Policy Committee (MPC) will avoid raising rates this year, despite some market participants still pricing in the possibility of higher rates [1]. Foley notes that if the BoE maintains steady policy, as Rabobank anticipates, this could undermine the pound [1].
Rabobank maintains a three-month EUR/GBP forecast of 0.87 [1]. The resilience of the UK economy, especially in light of the energy price crisis stemming from the Iran war, is considered a better outcome than most forecasters had expected [1].
CONCLUSION
Rabobank anticipates the British Pound will trade within a range against the Euro in the near term, with potential for euro strength later in the year due to fiscal constraints and a steady BoE policy stance. The market's expectation of no rate hikes could weigh on Sterling, supporting Rabobank's three-month EUR/GBP forecast of 0.87.