According to analysts from Danske Bank, the pound remains undervalued and is set to be volatile for longer. They see EUR/GBP at 0.90 in a 1-month period.
Key Quotes:
“The Bank of England (BoE) voted unanimously in November to keep the Bank Rate at 0.75%. We expect the BoE to hike around once a year and our base case is that the next hike will arrive in May 2019. However, Brexit clarifications dragging out and, not least, a softer outlook for global growth imply that the BoE could postpone the next hike to H2 19. The UK money market has priced the next hike to September 2020.”
“The GBP remains fundamentally undervalued. Our MEVA model puts EUR/GBP at 0.78 (our Brexit-corrected MEVA estimate for the cross is around 0.83), while our PPP estimate is 0.76. The main risk continues to be Brexit, which will keep GBP undervalued and volatile for longer.”
“As the 29 March Brexit deadline approaches, upside risks to EUR/GBP may dominate unless we get further clarifications. Longer term, we base our EUR/GBP FX forecast on our main scenario that Parliament will eventually approve May’s Brexit plan. We expect this to pave the way for a significant decline in EUR/GBP. We emphasise that the key risk to our bullish GBP view is that Brexit clarifications drag out – even beyond 30 March if Article 50 is extended – and that GBP appreciation will be moderate and materialise later than our forecast implies.”
“We see EUR/GBP at 0.90 in 1M, 0.84 in 3M and 0.83 in 6-12M.”
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 assets. 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 Open Markets 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. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.