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USD and GBP outperforming the EUR – Danske Bank

FXStreet (Edinburgh) - Morten Helt, Senior Analyst at Danske Bank, reviews yesterday’s price action of the greenback and the sterling.

Key Quotes

“The USD and GBP gained yesterday against the EUR and both currencies are likely to gain further ahead of the releases of the minutes from the July meetings in BoE and Fed tomorrow, supported by speculations that these might include some hawkish twists indicating that rate hikes are moving closer”.

“Notably, speculations of hawkish BoE minutes have been fuelled after BoE governor Mark Carney on Sunday night said that the central bank could hike rates before wages increase”.

“In that respect, today’s CPI releases from the US and UK might not have a significant impact on the FX markets”.

“Fundamentally, we still expect both central banks to hike rates within the foreseeable future, paving the way for a move lower in EUR/USD and EUR/GBP”.

“On a relative basis, we expect GBP/USD to stabilise somewhat in the near term, following the decline over the past six weeks, as a re-pricing of the timing of the first BoE rate hike unfolds”.

“On a three to 12 months’ horizon, however, we expect the cross to eventually edge lower as the market prices in more rate hikes from the Fed. We target USD/GBP at 1.64 in 12M”.

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