Image © Pound Sterling Live
A leading European bank predicts the pound will eventually succumb to the euro.
New analysis from Dutch bank Rabobank says to "expect political risks to underpin downside potential for the pound."
In a new update to clients, Rabo's FX Strategist Jane Foley says the summer direction of the pound to euro exchange rate - currently at 1.1570 - will depend on the outcome of two central bank decisions and lingering political concerns in the UK.
"The tone and any guidance offered by policymakers could provide strong direction," she says.
The call comes in the run-up to the European Central Bank's Thursday policy decision, where it is expected to raise interest rates. A week later, the Bank of England is expected to leave rates on hold.
These decisions alone won't come as a surprise for the exchange rate, which is why the guidance will be important.
Rabobank says the Bank of England will hike just once this year, but if the energy situation regarding the Strait of Hormuz improves sooner, it might not hike at all.
"On balance, this suggests scope for a softer outlook for GBP," says Foley.
Above: Burnham on Question Time Thursday. Source: BBC.
Polymarket shows the odds of Burnham winning next week's Makerfield by-election as a near certainty (83%), while the odds of him being PM before the end of the year are around 63%.
"The gilts market has already indicated that it could be uncomfortable with a move to the soft left of the labour party," says Foley. "The high level of debt in the UK suggests little appetite for increased gilt supply."
In an interview with BBC's Newsnight, Burnham was unable to tell its host Victoria Derbyshire what the UK's fiscal rules were,
"At the same time the OBR has suggested that by the end of the parliament the UK tax burden is projected to reach the highest level since the second world war. These uncertainties could weigh on the pound," she adds.
Rabobank forecasts "a slow grind higher" in the euro-pound exchange rate to 0.89 on a 9-12 month horizon. That's a pound-euro forecast of 1.12.
