Pound's Recent Strength May Be Short-Lived, Rabobank Warns

Rabobank's FX Strategy team is cautioning that the Pound (GBP) may soften in the coming weeks, despite its recent strength. This optimism follows better-than-expected UK GDP data, which has lifted the GBP to become the best-performing G10 currency over a one-day view.

However, with the October 28 budget approaching, Rabobank expects GBP bulls to remain cautious, as rate hike risks are reined in. The team notes that more than 100 bps of policy tightening is already priced in on a 12-month view, suggesting little room for sustainable gains for the Pound.

Rabobank also points out that headwinds to growth in the Eurozone and political uncertainties in France and Germany may limit the EUR's potential. This could reduce upside potential for EUR/GBP into the new year, with the team expecting the pair to hold its recent range in the coming weeks.