While gilts managed to outperform their global peers by the end of the week, the pound remains the worse performing G10 currency in the year to date.
Flatlining levels of economic activity in the UK had suggested risks to the UK’s budget position which in turn implies the potential for a less steady political backdrop than had been projected by the government last year.
If UK investors had been nursing hope that the UK had the capacity to morph into an economy with higher productivity and growth rates following last year’s election, those expectations are now being re-set.
Against the backdrop of USD strength, we have recently brought forward our forecast of GBP1.20 to a 1-to-3-month view (from 6 months). Reflecting the poorer UK economic backdrop, we have also revised up our forecasts for EUR/GBP moderately. - Rabobank
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