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EUR/GBP around 0.78 in 3m view – Danske Bank

FXStreet (Edinburgh) - Morten Helt, Senior Analyst at Danske Bank, sees the next leg lower in the cross could extend to 0.78 in 3m view.

Key Quotes

“In its August inflation report, the Bank of England (BoE) highlighted that the amount of slack in the labour market, remains substantial, equivalent to around 1% of GDP”.

“The amount of slack remains an important factor in respect of timing the first rate hike and given the weak development in wage growth, the likelihood of a rate hike in 2014 has declined substantially”.

“For that reason, we now see a hike in January 2015 as the most likely scenario with risks tilted towards a hike already in December”.

“While the timing of the first BoE rate hike remains uncertain and will largely depend on the development in the labour market (wage growth in particular), the BoE is clearly on a very different path for monetary policy versus the ECB”.

“Hence, the case for a lower EUR/GBP, driven primarily by a divergent monetary policy outlook, remains intact and we target EUR/GBP at 0.78 in 3M (0.80), 0.77 in 6M (0.79) and 0.76 in 12M (0.77)”.

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