Brexit and sleaze to make a strong GBP recovery more difficult to achieve – Rabobank

The pound has settled above its recent lows vs. both the USD and the EUR, but it remains in a clearly weakened positioned.  EUR/GBP is still seen at 0.85 by year-end while UK politics concerning the issues of Brexit and sleaze may impact the performance of the pound, economists at Rabobank report.

Brexit and sleaze in the Tory party need to be monitored

“How much support the pound can garner from a potential BoE rate hike in the coming months will to some extent depend on whether a move is judged to be warranted. In the wake of mounting headwinds to growth in the UK, it appeared at the time that market participants were wary of a policy mistake from the Bank. This suggests that GBP may have struggled to rally even if the Bank had raised rates last week.”

“The fact that EUR/GBP has never come close to returning to the levels held prior to the 2016 referendum on EU membership suggests that Brexit-related uncertainty is largely already in the price. That said, headlines that the UK government may be close to triggering Article 16 of the Northern Ireland protocol has the potential to open a fresh set of worms for GBP.”

“The accusations regarding sleaze in the Tory party and the government’s U-turn last week over parliamentary standards have taken a toll on the PM personal poll rating. Given the government’s strong majority and absence of any near-term election, this may not translate directly into a softer pound near-term unless the situation worsens.”

“We retain our year-end EUR/GBP forecast of 0.85.”