GBP: Near-term outlook likely to be influenced by the outcome of French election - Rabobank

The research team at Rabobank explains that the near-term outlook for GBP is likely to be influenced by the outcome of Sunday’s French election. 

Key Quotes

“Since the start of the year the market has become less concerned about the rise of populism in Europe.  This factor in addition to better Eurozone economic data and a discussion about a potentially less dovish ECB has led to a sharp reduction in short EUR positions in recent months.  However, opinion polls suggest that there is a high number of undecided voters in France.  This factor combined with the recent rise in support for the far-left candidate Melenchen raises a worst case scenario for the markets in the form of a far-left vs. far right run off in the second round of the Presidential election next month.  This result would likely undermine the EUR and benefit the pound.   It would also cause us to revise our year-end forecast which is currently at EUR/GBP0.89.”

“While we concede that the potential for further short-covering could keep the sterling crosses close to current levels on a 1 to 3 month view, we maintain our forecast that GBP/USD is likely to trade lower in the 1.23-1.24 region by the end of the year as the Brexit talks progress.”