EUR/GBP: Sterling to struggle to make headway in view of headwinds to growth – Rabobank

The pound has now crept to its highest levels versus the euro since spring 2020. Plenty of market commentators are concerned about the impact of early Bank of England rate hikes on UK growth prospects though the most relevant question is ‘could’ the BoE hike rates soon, not ‘should’ it, in the opinion of economists at Rabobank. They forecast EUR/GBP at 0.85 on a three-month view.

Headwinds are coming 

“Fears around the medium-term outlook for the UK economy could hinder the prospects for the pound next year and beyond.”

“Tensions with French fishermen and disagreements about the Northern Ireland protocol have brought warnings of a trade war between the UK and the EU. Neither had had a significant impact on the pound to date. That said, this is a risk that the differences between the UK and the EU won’t be resolved easily and, on the margin, this news-flow provides an additional disincentive to GBP investors.”

“We are not expecting the BoE to raise rates in the coming months and see scope for GBP to edge lower on disappointment.”

“We are forecasting EUR/GBP at 0.85 on a three-month view. We expect USD strength to push cable back to the 1.36 area on a three-month view.”