EUR/GBP points to a consolidative 0.84-0.88 range – Danske Bank

Chief Analyst at Danske Bank Christin Tuxen expects the European cross to gravitate between 0.84 and 0.88 in the next months.

Key Quotes

“Our baseline scenario is that prime minister May will get the more broad-based backing she is seeking at a June election and thus will continue negotiating a ‘decent Brexit’ (neither too hard nor too soft)”.

“That said, the probability of other outcomes has clearly risen with the election call, adding a ‘chance-of-Brexit cancellation’ premium to sterling crosses”.

“In our main scenario that May stays in charge EUR/GBP should thus be in for a shift higher again post a June election. In this baseline outcome, we look for EUR/GBP to be range-bound for an extended period of time, trading in the 0.84-0.88 interval over the coming year, and we would not expect the pound to fight back to any great extent on a 12M horizon”.

“Thus we have adopted a flat forecast profile with EUR/GBP trading around 0.86 level on a 12M horizon (6 and 12M forecasts unchanged). But near-term risks are to the downside as GBP shorts are being covered on the heightened uncertainty, and needless to say, volatility will likely stay elevated”.