EUR/GBP: Brexit repriced again but high uncertainty set to prevail – Danske Bank
|Morten Helt, Senior Analyst at Danske Bank, notes that the GBP has rallied significantly since Donald Trump won the US presidential election, as the possibility of a closer economic relationship between the UK and US in the future justifies a lower Brexit risk premium priced on the GBP.
Key Quotes
“Moreover, the High Court’s ruling on Brexit implies that a ‘softer’ Brexit has become more likely. Thus, we have revised down our forecasts to 0.86 (previously 0.90) in 1M and 0.88 in 3M (previously 0.91). In the near term, we could see a further GBP rally given the heavy short GBP positioning butexpectthecrosstosettleinthe0.83-0.88rangeinthenearterm. However, weak UK fundamentals still justify a weak GBP to offset the negative consequences of Brexit and we expect renewed pressure on GBP over the three to six months in the run-up to when the UK government is likely to trigger Article 50. We target EUR/GBP at 0.90 in 6M (previously 0.92). Longer term, we expect EUR/GBP to stabilise to some extent, on attractive valuations and reduced uncertainty as more details about Brexit become available. We target EUR/GBPat0.90 in 12M.”
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