EUR/GBP to bounce back higher amid Brexit woes – BBH

EUR/GBP is lower despite negative Brexit news but economists at BBH do not think sterling outperformance can be maintained.

Outlook for the UK economy is much worse than it is for the eurozone

“We continue to believe that if a trade war breaks out between the two, the UK stands to lose much more than the EU. The UK is already facing recession risks from other headwinds, but a trade war would likely turn a mild recession into a deep one. In addition, so-called equivalence for UK financial firms would be dead in the water.” 

“If the UK does follow through with its threats, we would expect the euro to greatly outperform sterling. Even if the UK steps back from the brink, the outlook for the UK economy is much worse than it is for the eurozone. As such, we would fade this move lower in EUR/GBP as it approaches the May 2 low near 0.8376.”