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EUR/GBP could test 0.70 in the medium-term – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank has suggested the chance that the cross could slip towards the 0.70 level in the medium-term.

Key Quotes

“The combination of a tough export environment and sterling strength has begun to take its toll on the UK economy, giving weight to the argument that the BoE needs to be in no hurry to hike rates”.

“UK manufacturing production dropped by a worse-than-expected -0.8% m-o-m in July. This data release coincided with news of a wider-than-expected July trade deficit. If sterling strength has had a strong impact on exporters this year, it is also having an impact on importers”.

“On the back of weak energy prices, CPI inflation returned another flat y-o-y reading in August and was complimented by a soft 1.0% y-o-y rise in the core index. The low inflationary backdrop, however, is not entirely straightforward”.

“On the back of a tight labour market, average weekly earnings rose a stronger than expected 2.9% (3m average, y-o-y) in July meaning that the BoE’s hawks continue to have a lucid argument”.

“Bearing in mind that the Eurozone has also been subject to increased headwinds, we continue to expect EUR/GBP to trend to 0.70 on a 6 to 9 months view”.

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