According to analysts from Rabobank, the pound may see a little more volatility ahead of the Bank of England meeting. They still expect the EUR/GBP pair to continue to move sideways and to later dropped toward the year-end target of 0.84.
Key Quotes:
“Since early March there have been very few periods of real direction in EUR/GBP. The average price for the currency pair in that period is very close to 0.86 and almost all activity have been within the 0.85 to 0.87 boundaries. Towards the end of July, the pound came under pressure from a broad risk-off market move which coincided with a sharp spike in the number of the Delta variant within the UK. Clearly, this is not just a UK phenomenon and GBP recovered its poise.”
Despite the strength of UK retail sales in the June quarter, survey data are suggesting that the pace of growth in the UK could already be slowing. Production data have been impacted by a slowdown in car production due to the shortage of semiconductors. Moreover amid rising signs of labour shortages particularly in the haulage sector and in the food supply chain, survey data are looking a little less optimistic. UK PMIs for both manufacturing and services sectors in July missed expectations. This is likely to underpin markets expectations that BoE Governor Bailey will repeat his cautious tone at the August BoE meeting. That said, signs of a potential split have emerged on the back of recent hawkish remarks from both Saunders and Ramsden.”
“GBP may see a little more volatility ahead of the August BoE meeting, though we expect a continuation of range trading in EUR/GBP for the time being. We have maintained an end of year target of 0.84 for some time. This coincides with the completion of the Bank’s QE programme, though support for GBP may also require a slightly more confident tone from the BoE.”