According to analysts from Rabobank, the combination of speculations about negative rates from the Bank of England and a current account deficit in the United Kingdom could leave the pound particularly exposed to downside pressure.
“On a 1 month view, EUR/GBP has crept up by 1.8% and broken well above the psychologically important 0.90 level. Some of these gains can be attributed to an improvement in the EUR’s relative fundamentals. That said, the fact that the pound is the worst performing G10 currency on a 1 month basis highlights the extent of negative domestic pressures.”
“The BoE has left the prospect of a negative policy rate on the table. Although this is unlikely to be an imminent policy response, the chances of such an outcome would likely increase if a trade deal is not be agreed with the EU and recovery hopes were further undermined.”
“The combination of negative rates and a current account deficit could leave the pound particularly exposed to downside pressure. Although it is not our central view, this scenario could push EUR/GBP back to the 1.00 area. For now, we expect EUR/GBP to head on towards 0.92 on a 1 to 3 month view.”
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