Christin Tuxen, Senior Analyst at Danske Bank, believes the European cross could gravitate within the 0.84-0.90 range in the near term horizon.
“The election outcome was in many ways the worst possible for GBP: a Tory-led minority government keeps hard Brexit a reality but UK negotiation power vis-à-vis Brussels has clearly been impaired”.
“We stress that the GBP will likely stay in undervalued territory during Brexit talks but be highly sensitive to progress in discussions”.
“We see EUR/GBP in the 0.84-0.90 range near term. The domestic outlook in the UK is unlikely to provide much relief for the GBP near term: growth is set to slow and BoE to remain on hold until more clarity regarding Brexit is obtained”.
“Longer term, we stress that while clarity on Brexit terms should brighten the skies for the pound, appreciation potential should be limited by notably a terms-of-trade deterioration. We now look for EUR/GBP to trade around 0.87 throughout our forecast horizon (prev. 0.84 in 1-3M and 0.83 in 6-12M), i.e. any appreciation pressure has been postponed”.
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