EUR/GBP: Political risks and inflation support – Rabobank

Finance

EUR/GBP: Political risks and inflation support – Rabobank

Rabobank‘s Senior FX Strategist Jane Foley highlights that UK political uncertainty around Labour leadership and upcoming May elections could distract GBP markets this spring. She links GBP’s earlier outperformance to a sharp repricing of Bank of England (BoE) expectations, now partly unwound. With UK inflation risks tied to Middle East energy disruptions, they see EUR/GBP supported and expect gradual upside over a six‑month horizon.

Rabobank sees EUR/GBP grinding higher

“The political clouds in the UK are set to serve as a distraction for the GBP markets this spring especially if the Labour party fares poorly in the May elections as expected.”

“While GBP is the third best performing G10 currency measured since the start of the war in the Middle East, we would expect GBP bulls to become nervous in the weeks ahead.”

“Currently the market is priced for just over one rate hike on a six-month view.”

“The volatility in UK market rates in recent weeks hints of concerns about the anchoring of UK inflation expectations relative to some other G10 markets.”

“The 200 day and 100-day sma will likely provide near term support close to the EUR/GBP 0.87 level. We would favour buying dips on moves back towards 0.86 and look for the currency pair to grind towards the 0.88 area on a 6-month view.”