EUR/GBP: Scope for upside pressure in the coming months – Rabobank

According to analysts from Rabobank, the euro has scope for some appreciation versus the pound taking into account what market participants currently expect from the Bank of England (BoE). Also, consideration of a potential rate hike from the European Central Bank (ECB) before year-end should support the euro. 

Key Quotes: 

“The MPC had already voiced its concerns over the economic outlook at the last BoE policy meeting. Although interest rate were hiked in March on account of current tight labour conditions and the high headline inflation rate, the rhetoric from policy-makers was cautious. They predicted that “further out, inflation is expected to fall back materially, as energy prices stop rising and as the squeeze on real incomes and demand puts significant downward pressure on domestically generated inflation.” Policy-makers also forecast that the impact of real aggregate demand is likely to be larger than it forecast in February which is consistent with a weaker outlook for growth and employment.”

“We expect the money market to retrace some of the BoE rate hikes forecast for this year. As long as the market retains the view that the ECB will be able to hike rates before the end of the year, the EUR is likely to hold its ground. On that basis, we see scope for upside pressure in EUR/GBP in the coming months.”