GBP: Political risks cap recovery – Rabobank

Rabobank’s Jane Foley highlights that UK political uncertainty around Prime Minister Starmer’s leadership is limiting Pound relief, with EUR/GBP holding near 0.8700 and GBP the weakest G10 currency on a 5‑day view. Rabobank expects range trading in EUR/GBP around 0.86/0.87 in the near term, but still forecasts a grind higher and a 0.89 level on a 12‑month view.

UK politics and BoE cuts weigh on Pound

"UK PM Starmer may still be in his job today but the whole country is aware that he may still be subjected to a leadership challenge as soon as this spring. This factor may account for the limited degree of relief being expressed by the pound. Although EUR/GBP is trading below the week’s highest level, the currency pair is holding close to 0.8700 and the pound remains the worst performing G10 currency on a 5-day view."

"While we see potential for EUR/GBP to enjoy some range trading in the 0.86/0.87 area on a 1-month view on the assumption that UK politics moves back into the back seat in the coming weeks, we continue to see potential for the currency pair to grind higher into the middle of the year and beyond."

"The very fact that UK politics is again being watched by the market is not good news for GBP. The risk that political jitters may again worsen into the spring is another negative factor. Piled on top is the possibility that the BoE is one of the few remaining G10 central banks which is confidently expected to cut rates again."

"GBP can be particularly sensitive to the tone in UK long-term interest rates due to the UK’s current account deficit. Overseas savers can be particularly sensitive to any perceived deterioration in fundamental. This means that gilts can be more vulnerable on bad news than debt markets in countries with large piles of domestic savings."

"We forecast EUR/GBP at 0.89 on a 12-month view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)