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EUR/GBP sell on rallies – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, recommends selling the cross on strength.

Key Quotes

“In our view, investors are currently swallowing a dose of reality with respect to the performance of the UK economy and the outlook for BoE interest rate policy. While this could keep sterling on the back foot in the near-term, we do not expect this to extend too much further against the EUR”.

“In recent months the market has brought forward its expectation for the first BoE rate hike of the cycle from Q3 2015 to Q1 2015; with a significant minority penciling in a Q4 2014 hike. In recent weeks, however, the market is rethinking the wisdom of this call and sterling has softened accordingly”.

“While we find ourselves more dovish than the market consensus on the outlook for BoE rates, we do not expect the current correction in EUR/GBP to extend too far”.

“That said, irrespective of exactly when the BoE first hikes rates, it is almost certain to be ahead of the very dovish ECB. We expect EUR/GBP to trend lower towards 0.77 medium term and favour selling rallies to 0.80 near-term”.

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