The pound suffered a significant sell-off last week with the EUR/GBP pair surpassing the 0.92 level. Economists at Rabobank continue to view the pound as a vulnerable currency, therefore, a move of EUR/GBP towards the last year high at 0.9325 is likely in the next weeks.
“The current outlook for the pound is mired by an increased chance of another bout of parliamentary chaos and/or risk that the UK will be trading with the EU on WTO terms in the New Year. Even if a trade deal is struck, the tight timeframe left for the negotiations suggests that it is unlikely to be a comprehensive agreement. This suggests that beyond an initial relief rally, a trade deal could fail to garner the enthusiasm of the investment community. If the government fails to boost investment confidence, the long shadows over the UK economic outlook could remain in place for longer and this in turn suggests that fear of a BoE negative interest rate could remain on the table.”
“Even though EUR/GBP sailed past our long-term target of 0.92 at the end of last week, we would not rule out further losses for the pound in the current environment and certainly see scope for more volatility. Bearing in mind also that the EUR has displayed broad-based strength in recent months, an escalation of tensions between the EU and UK governments with respect to the latter’s intention to break its commitment to the Withdrawal Agreement could threaten a move towards last year’s high in the 0.9325 area in the coming weeks.”
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