EUR/GBP is still set to move slightly lower – Danske Bank

EUR/GBP has been more volatile lately and has moved closer to 0.86 after the Bank of England (BoE) kept monetary policy unchanged. Nevertheless, strategists at Danske Bank remain bullish on the pound as the USD-positive environment is usually also benefitting GBP and keep their EUR/GBP forecast intact at 0.83 in 12 months.

BoE’s rate hikes are looming

“Against market pricing but in line with our call, the BoE kept monetary policy unchanged at its November meeting. The BoE signalled, however, that rate hikes are looming. We still expect the BoE will hike 15bp in February, 25bp in May and 25bp in November (65bp in total).”

“We remain bullish on GBP as the USD-positive environment is usually also benefitting GBP.  We thus continue to target EUR/GBP at 0.83 in 12M.”

“A risk to our forecast is a hit to global risk sentiment and/or if Bank of England keeps monetary policy accommodative for longer than currently expected. Stagflation may become more pronounced in the UK compared to the euro area. EU-UK tensions remain a risk.”