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EUR/GBP to continue trending lower – Rabobank

FXStreet (Córdoba) - According to Jane Foley, analyst at Rabobank, monetary divergences between the Bank of England and the European Central Bank will continue to play a role in EUR/GBP.

Key Quotes:

“The UK’s effective exchange rate has risen around 7.5% since the start of the year, the major contributing factor to the move has been the strength of GBP vs. the EUR. Even though the market has consistently pushed back its expectations of the first BoE rate hike this year, the reality is that the economy has seen a tightening in monetary conditions via the exchange rate and this has been reflecting not only in inflation data but also in other UK data.”

“Given the very dovish tone of the ECB currently and the risk of further ECB easing, the BoE is likely very aware of the need to manage the direction of the EUR/GBP exchange rate. We would argue that the more the ECB eases, the more likely a delay in the first BoE rate hike becomes. We are currently projecting steady BoE rates until August 2016.”

“While we expect the BoE to remain cautious on policy moves in the coming months we expect EUR/GBP to continue trending lower on the back of ECB policy measures towards 0.68 on a 9 to 12 mth view.”

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