25 Mar 2015
EUR/GBP to push lower in H2 15 - Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, explains that with deflation and election risks looming around for the pound, GBP/USD might remain vulnerable in the coming weeks while EUR/GBP might remain capped at 0.74, and push lower only in H2 2015.
Key Quotes
“While we are not expecting that the BoE will have to change tact and cut interest in order to offset deflationary risks, yesterday’s drop in core inflation does raise the risk that UK rates could stay low for longer.”
“This year we have been forecasting that the first BoE rate hike is likely to be in February 2016. Currently it seems that the risks in favour of a delay could be building.”
“Given that Germany economic data have been improving, the interest differential that drove EUR/GBP lower between early January and mid March may not widen as far as investors have been expecting over the coming year or so.”
“While this change in perceptions may mostly explain the current correction in EUR/GBP, we would add that sterling vulnerability near-term is likely to be exacerbated by the forthcoming May 7 general election.”
“The two party system that dominated the UK political landscape in the post WW2 period has unravelled. Opinion polls are suggesting that neither of the two main parties has enough support to claim a clear victory and there is risk that the UK may have to wait an uncharacteristically long period before a coalition government is formed.”
“We while expect some resistance at the EUR/GBP 0.74 level, we look for sterling to remain vulnerable in the coming weeks before EUR/GBP again pushes lower again during the second half of the year.”
Key Quotes
“While we are not expecting that the BoE will have to change tact and cut interest in order to offset deflationary risks, yesterday’s drop in core inflation does raise the risk that UK rates could stay low for longer.”
“This year we have been forecasting that the first BoE rate hike is likely to be in February 2016. Currently it seems that the risks in favour of a delay could be building.”
“Given that Germany economic data have been improving, the interest differential that drove EUR/GBP lower between early January and mid March may not widen as far as investors have been expecting over the coming year or so.”
“While this change in perceptions may mostly explain the current correction in EUR/GBP, we would add that sterling vulnerability near-term is likely to be exacerbated by the forthcoming May 7 general election.”
“The two party system that dominated the UK political landscape in the post WW2 period has unravelled. Opinion polls are suggesting that neither of the two main parties has enough support to claim a clear victory and there is risk that the UK may have to wait an uncharacteristically long period before a coalition government is formed.”
“We while expect some resistance at the EUR/GBP 0.74 level, we look for sterling to remain vulnerable in the coming weeks before EUR/GBP again pushes lower again during the second half of the year.”