EUR/GBP: Brexit bumps ahead - Danske Bank

Brexit negotiations are now entering a critical phase, noted Danske Bank analysts. They expect EUR/GBP to remain very volatile and sensitive to Brexit news in coming months and see it at 0.89 in 1 to 3 months. 

Key Quotes: 

“In our view, uncertainty regarding Brexit negotiations will keep GBP undervalued and volatile for longer. Timing the market’s repricing of a Brexit risk premium is nearly impossible.”

“Brexit negotiations are now entering a critical phase and we expect EUR/GBP to remain very volatile and sensitive to Brexit news in coming months. We target 0.89 in 1-3M, with risks skewed to the upside in the very near term ahead of the annual UK Conservative Party congress (30 Sept-3 Oct), which in our view is an important hurdle and potential source of volatility, before the final Brexit negotiations. As such, a stretched short speculative GBP positioning and fairly neutral UK interest rates should help to curb EUR/GBP upside potential. However, Brexit will be key driver and stretched positioning is not an obstacle for a significant break higher in EUR/GBP if the likelihood of a ‘no deal’ scenario increases.”

“Longer term, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M.”