EUR/GBP remains on course for reaching year end 0.84 target – Rabobank

Analysts at Rabobank retain their long held year-end forecast of the EUR/GBP pair at 0.84. They point out that while better economic data from the United Kingdom could open up downside potential in the currency pair, another hawkish step would likely be needed from the Bank of England to trigger a strong downside move.

Key Quotes: 

“The minutes of the BoE’s August policy meeting use the phrase “two-sided risks’ at least three times to describe the adjustments faced by the UK economy in the wake of the pandemic, and in particular the path of inflation.  This turn of phrase suggests that a range of views were aired by policy-makers at their regular meeting.  It had already been made clear by the speeches of  MPC members Ramsden, Saunders, Haskel and Broadbent last month that differences have appeared within the committee about view on the permanence of inflationary risks.”

“Although the pound failed to hold its ground vs. a buoyant USD in subsequent sessions, the pound has made headway vs. the EUR.  Given the continued dovish guidance from the ECB, this suggests that EUR/GBP remains on course for reaching our year end 0.84 target.”

“While GBP picked up a little ground vs. the EUR on the bank of the more hawkish sounding commentary last week, bulls will be wary that their advantage is still vulnerable to bad news on the UK economy and potentially on Covid.  The market is expecting the release of UK Q2 GDP growth later this week to show a healthy 4.8% q/q bounce in reflection of the lifting of many restrictions.  However, there is the risk that production could be curtailed due to supply shortages.”