EUR/GBP seen around 0.8400 in the medium term – Danske Bank

Kristoffer Lomholt, Senior Analyst at Danske Bank sees rallies in the Sterling as short lived, while the cross is expected to grind lower towards the 0.84 region in a 6-month horizon.

Key Quotes

“EUR/GBP has stabilised just below the 0.89 figure after GBP gained on Tuesday on the news that the UK Prime Minister relegated the Brexit Department”.

“We expect EUR/GBP to trade slightly lower going into the Bank of England meeting next week where we expect the BoE to hike the Bank Rate by 25bp. However, given that a rate hike is almost fully discounted in the market, we would expect any rally in GBP to prove short-lived”.

“Hence, we look for EUR/GBP to remain range bound near term with Brexit uncertainty expected to remain a key source of volatility. Longer term, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.8650 in 3M, 0.84 in 6M and 0.83 in 12M”.