EUR/GBP seen at 0.86 in 6/12-month – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, believes the European cross could grind lower towards the 0.86 area in the medium to longer run.

Key Quotes

“EUR/GBP has dropped sharply following the hawkish rhetoric from the BoE as the market has priced in a high probability of a November rate hike”.

“We have lowered our EUR/GBP forecast as we now expect the BoE to deliver an ‘adjustment’ rate hike in November taking away the ‘emergency’ rate cut it delivered in August 2016 post the Brexit vote”.

“In the near term, we expect EUR/GBP to decline to 0.87 in 1-3M driven by slightly higher UK interest rates and GBP short covering. Longer term, we still see potential for a further decline in EUR/GBP driven by possible clarifications regarding the Brexit negotiations and valuations”.

“However, with the ECB moving towards an exit as well and as relative growth is set to remain EUR/GBP positive, we see only modest downside potential in the year ahead. We now target 0.86 in 6- 12M (previously 0.90 in 6M and 0.88 in 12M)”.