Chief Analyst Allan von Mehren at Danske Bank noted the Sterling should stay under pressure in light of the upcoming speech by PM T.May.
Key Quotes
“UK Prime Minister Theresa May’s speech about Brexit will attract a lot of attention in the FX market today. EUR/GBP has not reacted much to the past few days’ unconfirmed reports about what May will say and the possible leak of her speech last night”.
“As such, a signal from her that the UK will go some way to meeting the EU’s demands could be seen as a positive for GBP. However, optimism could quickly turn out to be short-lived, as May still faces the difficult task of balancing domestic disagreements, and if she lays out a too soft Brexit tone, she could come under significant pressure from the ‘hard Brexit’ camp within the Conservative party in connection with the Conservative party congress on 1-4 October”.
“Hence, while we expect EUR/GBP to remain under pressure ahead of the November MPC meeting, where we expect the BoE to hike, we note that a November hike is priced in already with an 80% probability, which is as high as it can be at this stage, in our view. Hence, we would consider buying EUR/GBP on dips down below 0.8750 today for a possible rebound in coming weeks amid high political uncertainty”.
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