EUR/GBP: Cross seen creeping higher – Rabobank

Rabobank’s FX Strategy team argues that current market pricing for up to three Bank of England hikes over the next year is excessive given a loosening UK labour market and lacklustre growth. They expect only one BoE move this year, which should weaken GBP and result in EUR/GBP drifting higher over a 9–12 month horizon.

BoE repricing to support EUR/GBP upside

"At the start of the Iran war, market pricing swung sharply from pricing in BoE rate cuts this year to pricing in as many as four rate hikes."

"However, the market still sees risk of three rate hikes on 1 year view. In Rabobank’s view, this is too many."

"The UK labour market has been loosening this year which indicates increasing levels of spare capacity and reduced risk of second order inflation effects taking root."

"We expect that the market will re-price in favour of just one BoE rate move this year which should see GBP soften."

"Our central view, however, is that EUR/GBP is likely to creep higher on a 9-to-12-month view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)