Rabo is suggesting lower for EUR/GBP, basing that on their view that Brexit will be postponed again.
EUR/GBP will first test to 90 though. Their logic:
- Since the start of May EUR/GBP has trended higher
- towards the EUR/GBP 90.00 area
- In the December/January period and previously in late August EUR/GBP has not being able to above this level for long
- Given the combination of political and economic risks currently gathering, the level again looks vulnerable on a 1 to 3 month view.
- Our forecast of EUR/GBP 0.86 in 6 month is based on the view that Brexit will again be delayed.
Rabo elaborate on those political and economic risks they mention:
- Q2 shaping up to return dismal UK growth data,
- market has grown a little more confident … the next BoE policy move could be a rate cut (
- suggests that for EUR/GBP the psychologically important 0.90 level could again be beckoning
On politics, the bank says the new personnel at the top of the EU will make it more difficult for whoever is the new UK PM to gain concessions ahead of the Oct withdraw date.
- this can be seen as promoting the risks of a no deal Brexit
- increasing the downside potential of the pound
