Difficulties related to the Northern Ireland protocol have sparked the risk of a trade war between the UK and the EU – this has the potential to make GBP reverse some of the ‘Brexit relief’ gains made at the start of the year, according to Jane Foley, Senior FX Strategist, Head of FX Strategy a Rabobank. What’s more, a delay in plans to fully reopen the economy would be another headwind for the pound.
GBP would likely see some unravelling of this year’s Brexit relief trade
“While we have not changed our forecast that EUR/GBP could still head to 0.84 by year end, GBP bulls may continue to struggle to make headway vs. the EUR in the near-term.”
“Since the 2016 Brexit referendum, the complications surrounding the avoidance of a hard border across the island of Ireland have tended not to cause significant duress to GBP. This is probably because of the tendency of the UK government to publically underplay the complexity of the situation. However, if the issue manifests in trade tensions with the EU, GBP would likely see some unravelling of this year’s Brexit relief trade.”
“Another disconcerting factor for GBP is the risk that on June 14, PM Johnson may announce that England’s economy will not be fully re-opened on June 21 after all. Although economic data are pointing to a strong surge in UK GDP growth in Q2, a push back to the June 21 full reopening in England is likely to hamper confidence.”
“To break lower from its current trading range EUR/GBP may first need to see speculation emerging about another shift in BoE policy. If markets remain calm during June and July, we see scope for a slowdown in the pace of purchases in the August MPC meeting. Support in the EUR/GBP 0.8560 area ahead of the 0.8472 April low.”
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