EUR/GBP: Monday’s low around 0.8250 might out of sight for now – Rabobank
GBP has unwound some of the gains it made against the EUR yesterday indicating that the market is not convinced that the pound is a robust hedge against the likelihood of a step up in trade tensions between the EU and the US, Rabobank’s FX analyst Jane Foley notes.
MPC to tweak its language to reflect growing downside risks
“Of course, the 30 days reprieve that the Trump administration granted to both Canada and Mexico yesterday suggest that the President may not be willing to slap harsh tariffs on his allies. While this may have allowed a collective sigh of relief in Europe in addition to Canada and Mexico, Trump’s rhetoric towards the EU has been clear. On Sunday he stated that he would definitely impose tariffs on the EU, describing the bloc’s trade deficit with the US as an atrocity.”
“While GBP has re-priced this year to take account of a poorer UK growth and budget outlook than was expected at the time of last year’s July election, Germany and France have their own structural issues. Our central view remains that EUR/GBP can edge gently lower this year, though the January sell-off has shaken our faith in the pound. Near-term, the BoE policy meeting is also in view.”
“In addition to the politics, the markets also have the BoE meeting in view this week. The Bloomberg survey shows that all but two forecasters are expecting a 25 bps rate cut from the MPC this week. While we expect the MPC to maintain its gradual approach to policy easing, we anticipate some language tweaks to reflect growing downside risks, which could weigh on the pound in the short-term and push yesterday’s low around EUR/GBP0.8250 out of sight for now. Rabobank’s foresees four 25bp cuts in 2025.”
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FXStreet Insights Team
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