EUR/GBP to lurch higher to 0.85 on a six-month view – Rabobank

The money market still appears aggressively priced for the Bank of England (BoE) hiking interest rates in the coming months. Consequently, economists at Rabobank expect the EUR/GBP to edge higher towards the 0.85 level over the next six months.

GBP vulnerable against both the USD and the EUR

“The market has re-considered the outlook for UK rates in the wake of the BoE’s dovish tightening in March. However, in our view, the market may still have too many rate hikes priced in. This leaves GBP vulnerable against both the USD and the EUR.” 

“Some market commentators have started to speculate that the BoE may think twice about hiking interest rates beyond May. Our house view is that the tightening cycle could persist a little longer to ensure that inflation expectations remain well-anchored.”

“Assuming that gas continues to flow into the Eurozone this year and that stagflation is avoided on the other side of the Channel, we expect EUR/GBP to tick higher to 0.85 on a six-month view.”