EUR/GBP Could Drop to 0.75 in 3-Month – Rabobank
Senior FX Strategist at Rabobank Jane Foley sees the possibility that the European cross could test 0.75 in 3-month view.
“The better tone in the pound since mid-April appears to have been sparked by relief at the generally better showing of the ‘Remain’ campaign ahead of the UK’s June 23 EU membership referendum”.
“The ‘What UK Thinks’ poll of poll, which tracks the average of the six most recent polls, is showing the lead of the ‘Remain’ camp at 53% vs. 47% for the ‘Leave’ campaign”.
“That said, in view of the high number of undecided voters and those who admit they could yet change their minds, politics still has the capacity to create a significant amount of volatility into the pound”.
“In addition, economic data cannot be completely ignored. Recent releases suggest that UK growth is slowing. This implies that even on a ‘Remain’ vote in June that the timing of the BoE’s first rate hike is likely to be further away than has been assumed”.
“We are currently pointing to February 2017 as earliest date for a UK policy tightening but confirmation of slower growth into Q2 will increase the likelihood that we will push this forecast into May 2017 or potentially beyond”.
“The implication of slower growth suggests that the scope for a GBP recovery on a ‘Remain’ vote will be capped. Assuming such an outcome we expect EUR/GBP to push back towards 0.75 on a 3 month view, well above its November low”.