EUR/GBP seen at 0.84 in 6-month – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, expects the European cross to grind lower towards the 0.84 area in the medium term.

Key Quotes

“Given that inflation is slightly lower and the unemployment rate slightly higher than projected in May, the probability of a rate hike in August has declined slightly. Hence, while we have kept our forecast unchanged we stress that risks are skewed to the upside relative to our 1M and 3M forecast at 0.88 and 0.8650, respectively”.

“Longer term, Brexit still remains a key driver for GBP, and while uncertainty remains high, 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 payment 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”.