The Euro to Pound Sterling (EUR/GBP) exchange rate held near 0.8703, with the pair steady as the Pound faces growing domestic and policy-related headwinds.
Rabobank notes that while sterling has been one of the stronger G10 performers since the start of the Middle East conflict, the outlook is becoming more uncertain as UK political risks return to focus.
“The political clouds in the UK are set to serve as a distraction for the GBP markets this spring.”
The bank adds that shifting expectations around Bank of England policy have also weighed on the Pound, with markets paring back earlier expectations for aggressive rate hikes.
Recent UK labour market data showed signs of cooling wage growth, reinforcing the view that underlying economic momentum may be softening despite inflation pressures linked to higher energy prices.
Rabobank warns that volatility in UK rate expectations is likely to continue, particularly as markets assess inflation risks and the impact of geopolitical developments on energy prices.
Rabobank forecasts the Euro to Pound Sterling exchange rate (EUR/GBP) will rise towards 0.88 over the next 6 months, with the bank favouring buying dips towards 0.86 as sterling sentiment deteriorates.
“We would favour buying dips… and look for the currency pair to grind towards the 0.88 area.”
