Pound Sterling Tipped To Strengthen To 1.19 Against Euro In H2 2024: Rabobank

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Pound Sterling Tipped to Strengthen to 1.19 Against Euro in H2 2024: Rabobank

The Pound to Euro (GBP/EUR) exchange rate challenged key resistance around 1.1765 in February and March but has, so far, failed to repeat this in April.

Rabobank sees little near-term headway, but also expects that it will strengthen to 1.1900 over the second half of 2024 as the ECB cuts rates.

Rabobank notes that the Labour Party has a very strong lead in opinion polls and is in a very strong position to win an election later this year.

Along with RBC Capital Markets, the bank notes that a new labour government would have very little room for manoeuvre on fiscal policy.

RBC considered that this would be negative for the Pound due to a hit on growth, but Rabobank considers that this would be more constructive as there would be an element of policy continuity.

Rabobank warns of the risk of further bouts of risk aversion due to Middle East tensions which would tend to undermine GBP/USD, but GBP/EUR should be resilient.

Looking at monetary policy, Rabobank notes that the Pound has benefitted from expectations that the ECB is more likely than the Bank of England (BoE) to cut interest rates in June.

Current market pricing indicates around a 50% chance of a BoE while the ECB pricing is at least 75%.

Key Quotes:

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“We raise our Q1 growth forecast to 0.4% quarter-to-quarter after last week’s GDP data.”

“That would comfortably beat the MPC’s projection of 0.1% growth in both quarters.”

“The stance of monetary policy could remain restrictive even if Bank Rate were to be reduced.”

“GDP in February reached the average level seen in Q2 2023, meaning the economy has already recovered.”

“The MPC can still cut interest rates as inflation and wages slow.”

“Returning growth won’t stop the MPC cutting rates but will keep it to a one-cut-per-quarter pace.”

“The resilience of the US economy and ‘too high’ inflationary pressures in the US has led to a huge change in market expectations.”

“We continue to expect 0.3% quarter-to-quarter growth in Q2.”

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