GBP: Guided by the politics and economics - Rabobank

According to Jane Foley, senior FX strategist at Rabobank, yesterday’s news from the EU regarding the nominations for its key jobs suggests that the next UK PM will not be able to win concessions from Brussels ahead of the Brexit deadline in October.

Key Quotes

“On the margin this can be seen as promoting the risks of a no deal Brexit and increasing the downside potential of the pound.  While politics has been the main driver for GBP for months, economics cannot be ignored by investors.”

“With Q2 shaping up to return dismal UK growth data, the market has grown a little more confident in its expectations that the next BoE policy move could be a rate cut.  This suggests that for EUR/GBP the psychologically important 0.90 level could again be beckoning.”

“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.”