Rabobank's Senior FX Strategist Jane Foley highlights that the British Pound (GBP) is expected to weaken moderately against the Euro (EUR) over the next one to three months, citing ongoing UK political and funding uncertainties. Foley notes that the recent speech by UK Prime Minister in-waiting Burnham, who could assume office as soon as July 20 if uncontested by July 17, reassured markets by pledging adherence to the current Chancellor’s fiscal rules. Despite this, investors remain cautious, particularly regarding Burnham’s potential choice of Chancellor, which is seen as a key signal for the government's fiscal direction. The GBP market has remained calm since Burnham's Makerfield by-election win, but a surge in short GBP positions, as indicated by recent CFTC data, reflects persistent political uncertainty. Rabobank forecasts EUR/GBP to rise to 0.87 within the next one to three months, driven by a likely re-pricing of Bank of England (BoE) rate hike expectations and the vulnerability of GBP to any instability in the gilt market [1].
Meanwhile, ING’s Francesco Pesole reports that European Central Bank (ECB) President Christine Lagarde’s opening remarks at the Sintra forum were measured and did not indicate a significant shift in policy communication. Lagarde stated that the ECB's response does not need to be as forceful as in 2022-2023, while also noting the resilience of the eurozone economy. Pesole expects other ECB speakers to reinforce market expectations for another rate hike this year, despite recent eurozone sentiment indicators showing easing inflationary pressures. ING maintains a preference for EUR/USD stabilization above 1.140 in the near term, acknowledging some downside risks ahead of upcoming US data and speeches at Sintra [2].
Both sources point to a supportive environment for the Euro: Rabobank anticipates EUR/GBP to move higher due to UK political risks and BoE repricing, while ING sees ECB communication as validating expectations for further tightening, supporting EUR/USD stability [1][2].
CONCLUSION
The British Pound is expected to face moderate downward pressure against the Euro in the coming months due to UK political uncertainties and potential BoE policy shifts, while the Euro is underpinned by steady ECB communication and expectations for further tightening. Market sentiment remains cautious, with investors closely monitoring political developments in the UK and ECB signals for future rate moves.