GBP: On a wobbly ground? - Rabobank

Analysts at Rabobank explain that Bank of England Governor Carney’s less than hawkish tone swept away market confidence last month regarding the chances of a rate hike in May and thus removed a significant support for the pound. 

Key Quotes

“At the same time tension has been building within the UK government regarding how PM May can fix the puzzle regarding how to take the UK out of the EU’s single market and customs unions without simultaneously putting hard borders across the island of Ireland or splitting apart her divided cabinet.”

“Adding to the mix has been a recovery in the value of the USD.  As a consequence of all of these factors cable is currently trading almost 6% below its April highs while EUR/GBP is back at levels last seen in mid-March.  Looking ahead we see scope for a softer pound in the coming months.  Sluggish UK growth has impacted the market’s confidence in the ability to the BoE to hike rates, while the chances of another crisis within the government appear to have risen again.  That said it remains our house view that the EU/UK will eventually agree a comprehensive post Brexit free trade agreement.  The latter would be a very welcome relief for GBP.  Consequently, we have pencilled in a sharply improved GBP on a 12 mth view.”