Chief Analyst at Danske Bank Christin Tuxen argued that the current weakness around the European cross is expected to be transitory.
“In our view, the move lower in EUR/GBP after UK PM May called for an early election is likely to prove temporary and we expect to see the cross edge higher as the election approaches, as our base case is that the May government will simply get a somewhat stronger backing for her ‘hard’ Brexit approach”.
“We thus expect to see EUR/GBP re-enter the 0.84-0.88 range as Election Day draws closer as prospects of a very soft or no Brexit fade again; we still target the cross around 0.86 in 3-12M”.
“Thus we recommend clients with sterling income/assets to lock in current levels using forwards, as we expect a resumption of the May leadership to induce a move higher in EUR/GBP again. Clients with GBP expenses should consider hedges with the optionality of benefiting from another GBP setback after the election”.