The Pound Sterling’s (GBP) struggle to keep pace with the Euro (EUR) this year reflects a shift in market optimism in favour of Germany and the Eurozone. Chancellor Reeves will no doubt be joining businesses in celebrating if the BoE do lower rates again in August. For certain, she will welcome the positive implications of a loosening in monetary policy on the growth outlook, Rabobank’s FX analyst Jane Foley reports.
BoE rate cut could offer temporary relief
“That said, economists’ forecasts for relatively sluggish growth in both UK GDP and productivity this year suggest that Reeves is very unlikely to be able to rely on improving economic momentum to dig her out of a difficult fiscal position.”
“Having outperformed the EUR in both of the last two years, the pound has lost ground vs. the single currency in the year to date and EUR/GBP is making good progress towards our 0.87 goal. We have brought this target forward to a 3-month view and we have raised our 6-month forecast to 0.88.”
“On the back of reduced fears regarding US recession and inflation risks, the USD has recovered some ground and become the best performing G10 currency in the month to date. We see scope for further short covering to boost the USD on a 1-to-3-month view and therefore see further downside pressure on cable in this horizon.”
