EUR/GBP: There may be further downside potential but not as fast as recently – Rabobank

The outstanding performance since the start of the year could have lead to a bout of profit-taking on Tuesday, explained analysts at Rabobank. They point out while there may be some hesitation to hold long GBP positions ahead of this week’s Bank of England (BoE) meeting, the sentiment was knocked by news concerning suspensions of the Oxford vaccine in various European countries. While the may be further downside potential in EUR/GBP in the months ahead, Rabobank analysts retain a view that the pace of any gains for the pound will be far slower than in the year to date. 

Key Quotes: 

“The UK’s rapid vaccine roll-out has been responsible for a wave of optimism about the ability of the UK economy to reflate this year. The plunge in UK GDP output last year was the worst in the G7 and the market appears to be positioning itself from a strong rebound this year. The BoE has been less dovish than most of its peers with respect to the outlook. While Governor Baily has retained a note of cautious in his comments, Chief Economist Haldane has been unfettered in his enthusiasm, referring to the UK economy as a coiled spring. While the vaccine rollout programme and an ongoing restrictions have sharply reduced the incident of covid-19 in the community, there are signs that in some regions infections are again rising following the reopening of schools in England on March 8. Insofar as a lot of good news is in the price, GBP is set to be sensitive to any possibility of disappointment over the pace of rollback of lockdown measures.”

“We retain our medium-term forecast of EUR/GBP0.85 but see scope for pullbacks to the 0.86-0.87 area in Q2.”