EUR/GBP Fundamental Forecast week of July 18, 2016

The EUR/GBP dipped 1.93% as the euro weakened and the pound soared on a bit of positive political moves. The pair ended the week at 0.8367. Many analysts have recommended selling any rallies in the pound in anticipation of cuts in Bank of England interest rates and a slowdown in growth in the months ahead, with a number of major banks predicting it will fall to $1.25 or lower.

Sterling forward interest rates, which had been pricing in a strong chance of a cut in the bank’s 0.5 percent base rate to zero by September, now only fully price in a single quarter-point cut.

Against the euro, sterling fell 0.8 percent on the day to 83.98 pence. For the week, though, the pound was up 1.7 percent against the single currency – its best week since May.

“I do think this rally is an opportunity to reload shorts,” said a trader with one international bank in London. “Everyone’s assumption is that there is a lot of bad news to come this year, so it does just seem like a matter of time before we go lower again.”

The drama continues in Britain, where financial and political developments are unfolding on an almost daily basis. On Thursday, the BoE surprised the markets by staying put and not lowering interest rates. The markets had widely expected a quarter point cut from the BoE, which would have marked the first rate cut since July 2009. BoE Mark Carney had strongly hinted at the move when he recently stated that economic conditions had deteriorated and the BoE would need to lower rates in the summer, but Carney has evidently decided to wait. On the political front in Britain, Theresa May replaced David Cameron as Prime Minister on Wednesday. May was a strong supporter of the Remain camp, but she will now be mandated with presiding over Britain’s exit from the European Union.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.