EUR/GBP could test 1.00 in a no deal scenario - Danske Bank

Analysts at Danske Bank, expect the EUR/GBP pair to test the 1.00 level in the case of a no deal scenario regarding Brexit while they see it moving near 0.82 if a second referendum is called. 

Key Quotes: 

“PM Theresa May and the EU reached an agreement on Brexit and further got support for her Brexit deal from the Cabinet. The real test remains to pass the deal in the House of Commons, while a potential leadership challenge in the Conservative party might be the first obstacle for UK MP May and Brexit.”

“We expect the BoE to hike around once a year and our base case is that the next hike will arrive in May 2019. The UK money market curve is relatively flat, with the next BoE rate hike priced to arrive in November 2019.”

“While our main scenario remains a decent Brexit and that EUR/GBP eventually will break lower once a deal is finalised (and accepted by the House of Commons), the path towards Brexit has become even bumpier. Hence, the likelihood of our main scenario has declined substantially, while the probability of other scenarios, such as a no deal scenario has increased.”

“We expect EUR/GBP to test 1.00 in a no deal scenario, while EUR/GBP is expected to break lower into the 0.82-0.86 range if a second referendum is called. Near term, the political situation in the UK will be pivotal for GBP where a potential leadership challenge in the Conservative party might be the first obstacle for UK MP May and Brexit.”