EUR/GBP seen at 0.91 on a one-month view – Rabobank

Politics and economics are both set to remain drivers for the pound since they both are also likely to be an influence on the path of BoE policy which will need to increase QE and mull negative interest rates. Economists at Rabobank expect the EUR/GBP at 0.91 in one month.

Key quotes 

“If a EU/UK trade deal is announced in the coming months it will be a relief for the pound. Even then, however, any gains for GBP could be curtailed by a string of poor UK economic data releases.” 

“Our estimates suggest that UK GDP could plunge by -19.5% q/q in Q2 2020, far steeper than contractions in the US, Germany, France and even Italy.”

“There is a strong consensus in the market that the BoE will increase the size of its asset purchasing scheme over the summer, but a storm of bad UK economic data is likely to keep alive the debate over whether or not the Bank will eventually succumb to the draw of negative interest rates. The type of trade deal negotiated with the EU will also feed this argument about BoE policy is likely to pan out.” 

“Given the risk that a trade deal is likely to be difficult to trash out, we see risk of a move towards EUR/GBP 0.91 on a one-month view.  While we see scope for a recovery into year-end, we see GBP upside limited by recessionary woes. In a six-month view, we see EUR/GBP in the 0.89/0.88 area.”