Senior Analyst at Danske Bank Kristoffer Lomholt noted the European cross may appear ‘oversold’.
“Elsewhere in terms of majors, EUR/GBP yesterday bounced on the lower-than-expected UK CPI figures. We think rate market’s pricing of an implied 5bp BoE rate increase by end of 2017 and an accumulated 24bp by end of 2018 is overdone”.
“Hence, UK interest rates are more likely to be a GBP negative in the coming months. Moreover, our short-term financial model also implies that EUR/GBP is oversold suggesting that the Brexit risk premium probably is priced too low”.
“Tactically we still like to buy EUR/GBP on dips as 1) GBP is expected to suffer as Brexit moves closer and 2) European political risk premiums have probably been priced for now and thus less EUR downside risks near term”.