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25 May 2015
EU membership uncertainty could weigh on the GBP – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior FX Strategist, notes that the pound has lost its post election rally glow as attention shifts to the uncertainty involving UK’s future in the EU, and further believes that this would weigh on the currency, targeting GBP/USD at around 1.50 over H2, 2015.
Key Quotes
“While the July budget will help to clarify the outlook for fiscal austerity in the UK, the debate surrounding the UK’s relationship with the EU will take longer to clarify. UK PM Cameron is due to travel to Berlin and Paris for talks which could set the tone for his government’s attempt to negotiate reforms that may strengthen the UK electorates’ confidence with EU membership.”
“In order to mitigate the uncertainty connected with the UK’s future in the EU, Carney has already recommended that the referendum be held in 2016 rather than 2017. This implies the Bank recognises the risk of tangible economic side effects from the uncertainty.”
“While the ups and downs of the EU membership debate threaten to inject fresh volatility into sterling, the risk that some inward investment will be deterred suggests downside risks are likely to be more prevalent.”
“On the assumption that the USD will find itself on a firmer footing into the end of the year, we expect that cable will spend most of H2 trading closer to the 1.50 level than recent levels. We still expect EUR/GBP to edge gradually towards 0.70 on a 6 -9 mth view under the weight of the ECB’s QE programme.”
Key Quotes
“While the July budget will help to clarify the outlook for fiscal austerity in the UK, the debate surrounding the UK’s relationship with the EU will take longer to clarify. UK PM Cameron is due to travel to Berlin and Paris for talks which could set the tone for his government’s attempt to negotiate reforms that may strengthen the UK electorates’ confidence with EU membership.”
“In order to mitigate the uncertainty connected with the UK’s future in the EU, Carney has already recommended that the referendum be held in 2016 rather than 2017. This implies the Bank recognises the risk of tangible economic side effects from the uncertainty.”
“While the ups and downs of the EU membership debate threaten to inject fresh volatility into sterling, the risk that some inward investment will be deterred suggests downside risks are likely to be more prevalent.”
“On the assumption that the USD will find itself on a firmer footing into the end of the year, we expect that cable will spend most of H2 trading closer to the 1.50 level than recent levels. We still expect EUR/GBP to edge gradually towards 0.70 on a 6 -9 mth view under the weight of the ECB’s QE programme.”