GBP: Guided by political uncertainty - Rabobank


According to Jane Foley, Senior FX Strategist at Rabobank, given the backdrop of heightened political uncertainty in the UK, it is a relief that at least there is a fairly strong consensus with respect to the central bank outlook.

Key Quotes

“In line with our view, the market sees around an 80% chance of a 25 bps rate hike from the BoE on August 2 against the backdrop of a tight labour market and a consumer sector which appears to have been bolstered by a combination of warm weather, royal wedding and world cup fever.”

“Expectations that the Bank is set to raise rates is likely to afford GBP some downside protection.  That said, against the backdrop of political turmoil the pound remains vulnerable.  Given the gulf that is opening between the pro-Brexit and pro-(EU) Remain factions of PM May’s government and the fast reducing number of weeks before a Brexit plan must be in place, the pound could slip further.”

“We expect EUR/GBP to trade at 0.89 on a 3 to 6 month view.  This assumes that a UK/EU trade deal will eventually be in place and that a hard Brexit will be avoided.”

“The political events in the UK over the past ten days or so have been both fast moving and complex. For GBP investors, however, the choice of reactions is clearly limited.  The relatively confined degree of GBP volatility in recent weeks suggests that political uncertainty has chased many potential market players to the side-lines.”

“For the rest, the remaining choice is binary.  This has forced the complexities of Brexit into two simple channels.  GBP rises if the market assumes that the chances of a soft Brexit are on the rise and drops if the Brexiteers appears to be winning back ground.”

“For the BoE the uncertainties connected with Brexit clearly pose a challenge.”

“Although the MPC will not speak directly about the outlook for GBP, the risk that political uncertainty could drive GBP significantly lower and lead to another surge in CPI inflation also suggests that the MPC may favour hiking rates again this year.”

“This should afford some protection for GBP, particularly given the ECB’s very dovish guidance on rates.  That said, on a hard Brexit we would expect GBP to fall sharply.  Although it is not our central view, in these circumstances we would not rule out a move to EUR/GBP 1.00.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD clings to modest gains above 1.0650 ahead of US data

EUR/USD clings to modest gains above 1.0650 ahead of US data

EUR/USD trades modestly higher on the day above 1.0650 in the early American session on Tuesday. The upbeat PMI reports from the Eurozone and Germany support the Euro as market focus shift to US PMI data.

EUR/USD News

GBP/USD extends rebound, tests 1.2400

GBP/USD extends rebound, tests 1.2400

GBP/USD preserves its recovery momentum and trades near 1.2400 in the second half of the day on Tuesday. The data from the UK showed that the private sector continued to grow at an accelerating pace in April, helping Pound Sterling gather strength against its rivals.

GBP/USD News

Gold flirts with $2,300 amid receding safe-haven demand

Gold flirts with $2,300 amid receding safe-haven demand

Gold (XAU/USD) remains under heavy selling pressure for the second straight day on Tuesday and languishes near its lowest level in over two weeks, around the $2,300 mark in the European session. Eyes on US PMI data. 

Gold News

Here’s why Ondo price hit new ATH amid bearish market outlook Premium

Here’s why Ondo price hit new ATH amid bearish market outlook

Ondo price shows no signs of slowing down after setting up an all-time high (ATH) at $1.05 on March 31. This development is likely to be followed by a correction and ATH but not necessarily in that order.

Read more

US S&P Global PMIs Preview: Economic expansion set to keep momentum in April

US S&P Global PMIs Preview: Economic expansion set to keep momentum in April

S&P Global Manufacturing PMI and Services PMI are both expected to come in at 52 in April’s flash estimate, highlighting an ongoing expansion in the private sector’s economic activity.

Read more

Forex MAJORS

Cryptocurrencies

Signatures