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EUR/GBP forecast at 0.90 over the summer - Danske Bank

Analysts at Danske Bank, expect the EUR/GBP pair to trade near 0.90 over the summer but the risk of moving towards 0.91 has clearly diminished as the Federal Reserve easing will do the heavy lifting that might otherwise have needed to be done by Bank of England.

Key Quotes: 

“EUR/GBP has gone substantially higher after the breakdown in cross-party talks that also led Theresa May to step down. We expect non-Brexit drivers to weaken the GBP slightly over the summer, as weak macro data is starting to take EUR/GBP higher.”

“Bank of England does not seem in a hurry to raise rates in the current environment with UK leading indicators suggesting a slowdown, inflation and wages under control, weakness in Europe and prolonged Brexit uncertainty. This was again confirmed at the June meeting.”

“A dovish FOMC makes it less likely that we should think about targeting a large move higher into the 0.90s. Part of a potential BoE reaction to weak UK data is now being handled by the Fed loosening global financial conditions. There is a large Brexit premium (about 5%) which, if unwound, would strengthen the GBP substantially.”

“In turn, we forecast EUR/GBP at 0.90 over the summer. The likely range of outcomes is 0.86 - 0.91. The upper end of 0.91 is less likely as the Fed is set to do some of the lifting that might otherwise need to happen via BoE.

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