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EUR/GBP seen at 0.70 in 6-month – Danske Bank

FXStreet (Edinburgh) - In the view of Pernille Henneberg, Senior Analyst at Danske Bank, the European cross could slip to the 0.70 area in the medium term.

Key Quotes

“The Bank of England (BoE) took another dovish stance at its monetary policy meeting yesterday”.

“Although the pressure on the BoE to keep rates low eased significantly after the ECB disappointed last week, the lower oil price has lowered the inflation outlook for next year. The lower oil price is the main reason why we now expect the first BoE hike in Q2 16, probably in May (previously Q1 16, February)”.

“The implication for FX is that we now see less EUR/GBP downside potential short term but instead look for a more gradual and longer lasting decline instead”.

“Thus, we have revised our 3M EUR/GBP forecast higher to 0.71 (previously 0.68) as GBP now should see less support from relative rates in the coming months”.

“With the first BoE hike now expected to arrive in Q2 instead, we forecast EUR/GBP to drop to 0.70 in 6M (was 0.71). Longer term, we still expect the cross to stabilise and eventually move gradually higher, and we keep our 12M target unchanged at 0.73”.

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