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Upside risks on a 1 to 3 month view – Rabobank

According to analysts from Rabobank, the EUR/GBP pair remains unsettled despite the results of the general elections, as the risk of a disorderly Brexit remains. 

Key Quotes: 

“The Tory party’s 80 seat majority in the House of Commons means that the UK will be leaving the EU on January 31. PM Johnson is confident that a deal with the EU on the future relationship can be done by the end of the year. Various EU officials, including European Commission President Von der Leyen are not optimistic. The PM may be bluffing over his refusal to extend the transition phase beyond the end of the year, but as it stands this implies the risk of a disorderly Brexit remains.”

“Already the pound has given back a significant slice of its post-election gains. The fact that UK GDP growth is running below trend and that CPI inflation is under the BoE’s 2% target suggests an easing bias to monetary policy. Already this year’s comments from various MPC members including Governor Carney have suggested that the Bank may be biased towards cutting rates sooner rather than later. Since the Bank no longer has monthly policy meetings, the publication of its next Inflation Report is scheduled to coincide with its January 30 MPC meeting.”

“The recent spate of soft economic data combined with the fact that this will be Carney’s last meeting as governor suggests this meeting will be watched closely by the market. We see risk of EUR/GBP trading moderately higher on a 1 to 3 month view with GBP only recovering later in the year if the future relationship talks between the UK and the EU progress well.

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