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At the start of this week GBP rallied sharply. Perhaps unsurprising given the extent of this upswing and following Tuesday’s mixed set of labour data, some profit-taking has subsequently emerged. Jane Foley, Senior FX Strategist at Rabobank, expects the pound to continue appreciating but at a slower pace.

Confidence in the EU’s vaccine programme has been boosted

“While we are forecasting further gains for the pound in the months ahead, we do expect the pace of this to be slower than seen at the start of the year. Not only is there a lot of good news priced into the pound but there is likely to be some degree of ‘catch-up’ in the vaccine rollout in the EU.”  

Today the European Internal Market Commissioner Breton has stated that at least 12 of the 27 countries in the bloc are confident that they will be able to vaccinate 70% of their adult population by mid-July. Although such good news is likely to be EUR supportive, we do not expect the EUR to react in the same bullish way as GBP did at the start of the year as the UK’s vaccine roll-out accelerated. This was linked with a push higher in gilt yields which in turn coincided with rising treasury yields and, in February, a less dovish than expected tone from the BoE.”  

Germany’s export sector was already well supported last year from Chinese demand, suggesting there is less scope for a spike in GDP than in the UK.”  

“We are forecasting EUR/GBP at 0.85 on a 3-month view.”  

“We are assuming the USD can recover some ground into the summer and thus look for cable to trade mostly in a GBP/USD 1.38-1.40 range in the coming months.”