EUR/GBP to edge lower toward 0.84 by year-end – Rabobank

The softening in the pound vs. the euro on the announcement of the UK CPI data this morning was short-lived. This may suggest that the market sees little in this data to shift the debate about the UK inflation outlook, according to economists at Rabobank who retain a year-end forecast of EUR/GBP 0.84.

BoE is on a slightly more hawkish path than the ECB

“There are many reasons for the BoE to remain cautious about the withdrawal of policy stimulus. These include concerns about how the Delta variant will impact in the coming months and how the UK labour market will be affected by the ending of the furlough scheme. That said, it remains very likely that the BoE will remain mindful of what it has called ‘two-sided risks around the central path for inflation in the medium-term’.”

“The BoE’s asset purchase programme will be complete at the end of this year. While we are not expecting a rate rise until 2023, a debate has opened in the market as to whether a move in 2022 is possible.”

“Since the Bank of England is on a slightly more hawkish path than the European Central Bank, we remain of the view that EUR/GBP can edge lower by year-end towards 0.84.”