EUR/GBP supported near-term by relative rates, growth, and Brexit uncertainty - Danske Bank

After today’s Bank of England rate hike, analysts from Danske Bank, still expect EUR/GBP to trade within the 0.8650-0.9000 range in coming months with Brexit uncertainty remaining a source of volatility.

Key Quotes: 

“EUR/GBP increased following the rate hike announcement in line with our expectation as the BoE refrained from commenting on future rate hikes. With the next rate hike priced by November 2018, we see market pricing as slightly on the hawkish side in the sense that it is more likely that rate hike expectations for 2018 will be lowered in coming months than that more rate hikes in 2018 are priced in.”

“Overall, we still expect EUR/GBP to trade within the 0.8650-0.9000 range in coming months, with Brexit uncertainty remaining a source of volatility. In the near term, we expect relative rates, growth and Brexit uncertainty to be EUR/GBP positive and we still expect the cross to test the high end of the range.”

“Longer term, Brexit negotiations remain the key determinant for GBP and we still see potential for a further decline in EUR/GBP driven by possible clarification on 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 target 0.87 in 6M and 0.86 in 12M.”