EUR/GBP: Pound to remain well supported in the current environment – Rabobank

Analysts from Rabobank point out that while the pound may continue to struggle versus the US dollar in the current environment, they expect that it will remain well supported against low-yielding G10 currencies such as the Swiss franc, the yen, and the euro.

Key Quotes: 

“Despite the positive backdrop provided by the rapid vaccine programme in the UK, there is a long way to go before the economy returns to pre-Covid levels. This morning brought an upward revision to Q4 GDP to 1.3% q/q. This revision was accompanied by changes to the estimates for the previous quarters. Overall, the UK is now estimated to have shrunk by 9.8% y/y in 2020 only a touch less than the previous forecast of 9.9%.”

“Despite the optimism of Haldane about the ability of the UK economy to bounce ‘like a coil spring’ it is unlikely to be a smooth ride for the UK economy. Concerns prevail about the impact of scarring on the labour market. Additionally, the slow unwind of restrictions, particularly on travel, could be a hindrance to consumption and the residual reluctance of households to spend their additional savings ahead of expected tax hikes or due to job insecurity could also limit the scale of the recovery. This suggests choppy conditions ahead for GBP.”

“Reflecting broadly held concerns that the Eurozone is lagging on the reflation front, we have adjusted out EUR forecasts lower vs. both the GBP and the USD. Our 3 month EUR/GBP forecast is now 0.85 from a previous forecast of 0.86.”