EUR/GBP to continue to grind lower – Rabobank

By FXStreet FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, notes that since the start of the month EUR/GBP has recovered around 3.3% and the move is likely to have been greeted with some relief to BoE policy setters who have been viewing sterling strength as a headwind to UK economic activity.

Key Quotes

“The minutes of the November MPC meeting warn that “subdued overseas demand and the rise in the sterling exchange rate since mid-2013 were likely to have weighed on growth in both the manufacturing and services sector”. Measured since March 2013, the UK effective exchange rate has risen by almost 19%, though it remains well below it pre-crisis levels.”

“In our view, the outlook for BoE interest rate policy is irreversibly tied to the performance of the exchange rate. While the outlook for GBP/USD is important, due to the more substantial trade flows with the Eurozone, the EUR/GBP exchange rate would appear to have greater weight. For this reason the failure of the EUR to soften on the back of the ECB’s policy meeting last week was probably greeted with a sigh of relief by UK policy setters.”

“A broadly weaker EUR would likely have corresponded with additional strength in sterling and …read more

Source:: FX Street