The Pound has been the second best performing G10 currency after the US Dollar since the Middle East conflict. This was linked to a repricing of Bank of England (BoE) policy expectations.<\/p>\n
Before the conflict, markets expected the BoE could cut rates twice more this year. Current pricing implies between two and three rate hikes over a one-year view, though expectations eased slightly.<\/p>\n
Rabobank economist Stefan Koopman now sees a risk of only one BoE hike, which could come in April. Rabobank expects the Pound to lose some ground into spring as UK growth and stagflation risks weigh on the currency.<\/p>\n
Rabobank forecasts EUR\/GBP moving towards 0.87\u20130.88 over a 3\u20136 month period. The bank also expects the Pound to give back some recent gains against a basket of non-USD G10 currencies over the same horizon.<\/p>\n
The report noted the Pound could be more exposed to recession risk than some peers if the BoE tightens policy aggressively. The article stated it was created with help from an AI tool and reviewed by an editor.<\/p>\n
The Pound has been one of the stronger G10 currencies this quarter, fueled by market pricing for at least two more Bank of England rate hikes this year. This strength comes as recent data shows UK inflation remaining unexpectedly high at 3.5%, keeping pressure on the central bank. However, we believe these rate expectations are excessive and create an opportunity.<\/p>\n
The UK economy is showing clear signs of strain, making aggressive policy tightening a risky path. Last quarter’s GDP figures showed a contraction of 0.1%, and recent business surveys point to weakening demand into the spring. This backdrop makes the British economy more vulnerable to a recession than its European peers.<\/p>\n
We saw a similar pattern back in late 2025, when markets aggressively priced in rate hikes only for the Bank of England to deliver a more cautious approach as growth faltered. Given the current stagflationary risks, positioning for a weaker Pound against the Euro appears prudent. The options market shows that contracts protecting against a fall in Sterling have become relatively cheap.<\/p>\n
Therefore, traders should consider positions that will profit from a decline in the Pound, especially against the Euro. This could involve buying put options on GBP\/USD or call options on EUR\/GBP. We expect EUR\/GBP to move towards the 0.87 to 0.88 area over the next three to six months as economic reality weighs on the currency.<\/p>\n
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