Euro: Fiscal risks cap upside against British Pound – Rabobank

Rabobank's Senior FX Strategist Jane Foley discusses EUR/GBP in light of divergent fiscal and political risks in Europe and the United Kingdom (UK). Foley notes France’s more challenging fiscal and political backdrop versus the UK, and highlights UK budget concerns already priced into British Pound (GBP). They recently lowered EUR/GBP forecasts, now seeing the pair around 0.85 over a 3‑month horizon.

Fiscal risks drive Euro Pound moves

"Last week, we revised lower our forecasts for the EUR across the board. We would stress that Europe’s circumstances are currently very different from either of these crises and we would be cautious of drawing comparisons. That said, France’s political and fiscal issues are arguably in a more difficult position currently than those of the UK."

"This has allowed EUR/GBP to push lower ahead of the October 28 UK budget and should cap upside potential for the currency pair. Our revised 3 month forecast for EUR/GBP stands at 0.85."

"There are good reasons to expect that increased volatility will be maintained in EUR/GBP this month. Chancellor Healey faces a difficult task on October 28 but the situation on the other side of the Channel suggests that GBP is less vulnerable to a sell off vs. the EUR than it would be otherwise."

"Last week we revised our EUR/GBP forecasts lower across the board. We see EUR/GBP trading in a choppy range around current levels on a 1 to 3 month view."

"It is likely that there will be pullbacks that will offer the EUR some reprieve from the current selling pressure. That said, overall we expect the single currency to remain on the back foot for now."