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Things are currently not looking too good for the pound – Rabobank


The EUR/GBP pair failed to break through key technical resistance this week, which should bolster confidence in the pound a little, point out analysts at Rabobank. They recently abandoned their long-held year-end EUR/GBP 0.84 target in favour of a more moderate forecast of 0.85. They warn that it could prove too optimistic for the pound.

Key Quotes: 

“Despite the gloom, UK economic data this week brought news on an upward revision to Q2 data to 5.5% q/q from 4.8%. That said, in the wake of the BoE’s downward revision for Q3 growth, this brought little solace. The Bank is forecasting that UK GDP was still around 2 ½% below its prepandemic level last quarter at a time when many of its peers are already pulling above that level. Figure 6 illustrates OECD GDP indices for a number of G10 countries rebased to 2019. Relative to most of its peers, the UK was hit hard by the pandemic and is now struggling to regain its prepandemic growth path. Johnson’s vision was that Brexit would create a “high-wage, high skill, high productivity economy”. This transition will require investment.”

“The headlines are warning of higher costs and labour shortages. If the relative strength of GBP can be taken as a gauge of investors’ expectations regarding the relative attractiveness of the UK economy, things are currently not looking too good. We are forecasting cable at 1.36 at year end and EUR/GBP at 0.85. This assumes EUR/USD is at 1.16.”

 

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