Pound Sterling Forecast: Rabobank Says Political Risks Still Cloud Sterling Outlook
The Pound Sterling has been one of this month’s strongest-performing major currencies, but Rabobank believes investors may be underestimating the political and monetary-policy risks still facing Sterling.
The Pound to Dollar exchange rate (GBP/USD) traded near 1.3392, up 1.1% so far in July, while the Pound to Euro exchange rate (GBP/EUR) held around 1.1723, its strongest level of 2026 and more than 2.2% higher year-to-date.
Rabobank notes that the Pound is currently the second-best performing G10 currency this month, helped by expectations that UK interest rates will stay relatively high and by strong foreign investment into UK companies.
The bank also points to a surge in overseas mergers and acquisitions, with Reuters reporting that takeover activity targeting UK firms has risen 210% year-on-year to more than $230 billion.
However, Rabobank believes those supportive factors may prove temporary.
“We don’t see GBP as being free of political risk.”
The bank argues that while Andy Burnham’s expected appointment as Prime Minister on 20 July should provide a smoother transition than markets had feared, uncertainty over his Cabinet appointments and future fiscal plans is likely to keep investors cautious.
“Who Burnham appoints to be Chancellor is widely considered to be a crucial indicator.”
Rabobank also expects markets to scale back expectations for further Bank of England tightening.
“RaboResearch’s view [is] that steady BoE rates will prevail through to the end of the year, which should undermine GBP.”
As a result, the bank continues to expect EUR/GBP to edge higher towards 0.87 by year-end, implying some weakening in Sterling after its recent rally.
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