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GBP weakened sharply vs. the EUR last week. Economists at Rabobank believe investors may need to see signs of improved UK economic data to re-build their confidence in the pound.  

Politics may also feature in the outlook for the pound

“We expect that the market will have to see signs of clear improvement in UK economic data to push GBP to fresh highs for the year vs. the EUR.”

“The Scottish elections next month could provide a hiccup for the pound if the results lead to another push for an independence referendum. That said, polls have shown a narrowing in the lead of the pro-independence camp and this will limit the risk that this becomes a market event.”

“Northern Ireland news is also in the headlines. The current spate of violence in the province can in part be linked to Brexit. That said, in the last few years GBP investors have a tendency to pay little heed to Northern Ireland politics. This suggests that tensions may have to rise even further before GBP is significantly undermined by Northern Ireland or Brexit related news.”

“While investors may approach GBP with more caution in the weeks ahead, the EUR’s fundamentals remain uncompelling in view of the slow vaccine roll-out and the additional covid related restrictions in parts of Europe.”  

“We have dialled our one month EUR/GBP forecast back to 0.86 but still see scope for the currency pair to creep back to 0.85 on a 3 three-month view.”