Analyst at Danske Bank Aila Mihr gave her views on the European cross in light of the shift in tone from the BoE and the ongoing Brexit negotiation.
“With the prospect of a BoE rate hiking cycle materialising earlier than we forecast previously, GBP has been brought alive yet again. In an environment where the EUR uptick is losing steam a bit and the market remains stretched on GBP shorts, we have to admit that risks in EUR/GBP are now more balanced than we have laid out (previously, we saw risks tilted to the upside for the cross near term)”.
“That said, our position remains that EUR/GBP will have a hard time breaking significantly lower from here as Brexit uncertainty is set to be a subjugate for sterling for an extended period of time”.
“Near term, the cross should be capped around the 0.88 level (which prevailed before the summer uptick) but, further out, if the BoE initiates a hiking cycle, the adjustment towards fundamentals – our Brexit-corrected Medium-Term Valuation (MEVA) estimate for the cross is around 0.83 – could take place faster than our current forecasts (0.88 in 12m) project”.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.