Key Moments
- Rabobank’s Jane Foley highlights that UK budget uncertainty is underpinning a cautious stance on EUR/GBP, with a preference to buy on pullbacks toward 0.85.
- Planned fiscal rule flexibility and increased infrastructure spending under the Burnham government are seen as potential sources of additional gilt supply and tax concerns.
- Market nerves around UK fiscal policy are expected to persist into autumn, with the 50 day sma cited as resistance near 0.8578 on EUR/GBP.
Rabobank’s View on Sterling and Fiscal Risks
Rabobank’s Senior FX Strategist Jane Foley adopts a guarded view on the British Pound, citing uncertainty around the UK’s fiscal outlook and its implications for EUR/GBP. Foley points to the Burnham government’s intention to allow greater flexibility in fiscal rules and to step up infrastructure investment as key factors shaping the currency pair’s near-term direction.
Foley’s positioning strategy favors the Euro against Sterling, with a focus on accumulating EUR/GBP on weakness toward the 0.85 area. She notes that technical resistance is currently highlighted by the 50 day sma around 0.8578.
Market Strategy and Technical Levels
Foley’s preferred approach is to use bouts of Sterling strength as opportunities to increase EUR/GBP exposure, guided by specific price levels and technical indicators.
| Pair / Metric | Level / View | Comment |
|---|---|---|
| EUR/GBP | 0.85 | Preferred buy level on dips |
| EUR/GBP | 0.8578 | Area of resistance, aligned with 50 day sma |
According to Foley, “Uncertainty about the budget could keep the UK market nervous into the autumn and we would look to buy EUR/GBP on dips back to 0.85, with the 50 day sma currently providing resistance around the 0.8578 area.”
Fiscal Flexibility, Gilt Supply, and Growth Concerns
The Burnham administration’s intent to loosen fiscal constraints and ramp up infrastructure expenditure is central to Rabobank’s cautious stance. Foley underlines that these policies may translate into higher government borrowing and, consequently, more gilt issuance. While investors may differentiate between borrowing to fund investment and other forms of spending, additional supply in the gilt market still needs to be absorbed.
As Foley notes, “The market may be more forgiving if the government is borrowing to invest, but extra gilt supply will still have to be absorbed, and infrastructure projects are likely to take years before they raise capacity.”
Foley also emphasizes that “Either way, Burnham’s plans to ease the cost of living for the electorate still must be paid for.” This has already sparked discussion over which taxes could rise to finance these measures, and the potential fallout for the broader economy.
Tax Speculation and Potential Growth Impact
The prospect of future tax increases is emerging as another source of uncertainty. Foley flags that speculation is building not only around the specific taxes that might be targeted, but also around the macroeconomic implications of such changes.
She observes, “Speculation as to which taxes may go higher is already emerging and so too has speculation that this could have a contractionary impact on growth.”
In addition, Foley indicates that the fiscal framework itself may be adjusted to accommodate higher infrastructure outlays: “This implies changing definitions of public debt to allow for more spending on infrastructure.”
Implications for Investors
For market participants focused on UK assets and the Pound, Foley’s assessment underscores a backdrop of ongoing fiscal ambiguity. The combination of flexible fiscal rules, prospective increases in infrastructure spending, and uncertainty over future taxation is seen as a supportive factor for EUR/GBP, particularly on dips toward 0.85, with the 0.8578 area identified as a key technical hurdle.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
