EUR/GBP seen rising to 0.90 on a six to nine-month view – Rabobank

The discussion about the Bank of England’s rate outlook could create volatility for GBP crosses during 2023, warn analysts at Rabobank. They continue to see the EUR/GBP cross moving to the upside, reaching 0.90 in six to nine months.

BoE could turn dovish before either the ECB or the Fed

“One of the big themes for the year ahead will be the debate related to the likely timing of rate cuts from the large central banks. With the exception perhaps of the BoJ, there is a reasonable consensus about the likely timing of peak rates for most G10 central banks. By contrast, there is a big spread in opinions about when the first rate cuts could come, with economists apparently more likely than money market participants to judge that rates could remain higher for longer.

“There is speculation in the UK press that grim UK economic fundamentals could mean that the BoE could blink and cut rates before year end. While we do not subscribe to this outlook, the discussion regarding the BoE rate outlook could certainly create volatility for the GBP crosses this year.”

“The fact that the UK is already in a recession which, according to the BoE, could last all year suggests that GBP is likely to be sensitive to expectations that the BoE could turn dovish before either the ECB or the Fed. Even if the BoE has good reason to step up a hawkish tone, there were various instances last year when this failed to boost GBP, given the backdrop of weak investment growth, low productivity and overhanging uncertainties about the UK’s post Brexit relationship with the EU.”

“We retain the view that EUR/GBP will creep to 0.90 on a 6 to 9 month view.”