EUR/GBP: BoE signals mitigate upside risks - Danske Bank

Analysts at Danske Bank expect EUR/GBP to continue trading within a range of 0.8650-0.8850 in coming months after today’s Bank of England decision. Long-term they see the pair moving lower.

Key Quotes:

“Given the hawkish signals from the BoE, we expect relative interest rates largely to mitigate the EUR/GBP upside risks stemming from Brexit uncertainty, especially as it is likely the big debate Brexit clashes are postponed to the October EU summit.”

“Near term, a break below 0.8650 would, in our view, require a more pronounced repricing of the BoE’s future rate path, which we do not expect. Hence, we expect EUR/GBP to continue to trade within a range of 0.8650-0.8850 in coming months, targeting 0.8800 in 1M and 0.8650 in 3M.”

“Longer term, we still expect EUR/GBP eventually to trade lower, driven by Brexit clarifications and fundamental valuations. The turn in capital flows and FDI flows back into the UK, as indicated in the latest balance of payments data, suggest that a key headwind to GBP seen in Brexit is reversing, supporting the case for additional GBP appreciation over the medium term. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M.”