Burnham's Fiscal Choices Put GBP Outlook in Jeopardy
Rabobank's Senior FX Strategist Jane Foley discusses the British Pound (GBP) prospects in light of UK welfare reform and shifting voter polls. Foley highlights how Prime Minister Burnham's fiscal choices and intra-Labour tensions could affect gilts and the Pound.
The hints of fiscal restraint from PM Burnham have pleased both the gilts market and GBP, but it remains to be seen if he can maintain coherence within the Labour party. If he can demonstrate fiscal prudence, the outlook for GBP is set to turn more positive.
Foley expects steady Bank of England (BoE) policy given soft UK inflation but higher oil prices. She sees EUR/GBP biased higher toward 0.87 over three months, attributing this risk to potential political friction and disappointment over a lack of rate rises from the BoE.