Rabobank cites reduced Bank of England tightening expectations and UK political uncertainty as key drivers for pound weakness.
The British pound faces downward pressure as markets scale back expectations for aggressive Bank of England rate hikes. Recent UK labor and inflation data have eased immediate concerns, but pricing now leans toward no change at the June 18 meeting, with about 45 bps of tightening priced in over six months.
Earlier this year, markets anticipated up to four 25 bps rate hikes, but sentiment has shifted. Political uncertainty, including potential Labour leadership changes, adds to sterling’s volatility. Rabobank maintains a six-month EUR/GBP target of 0.88, expecting choppy trading around current levels.
While further reductions in BoE rate hike expectations could weigh on GBP, assurances from Labour leadership contenders on fiscal rules have provided some support. The pound has recovered slightly from recent lows against the euro and dollar.