EUR/GBP seen grinding lower in the longer run – Danske Bank

In view of Morten Helt, Senior Analyst at Danske Bank, the European cross is expected to retreat to the 0.84 area in the medium term.

Key Quotes

“Brexit negotiations are entering a critical phase, which, combined with continued political uncertainty in the UK is likely to remain a key source of volatility in coming months. We think it is unlikely that the EU and UK will reach an agreement in October but expect it to come in December”.

“Hence, EUR/GBP is likely to remain elevated and volatile in coming months and we raise our 1M and 3M forecasts to 0.890 (previously 0.875). Meanwhile, we believe that a stretched short GBP positioning and fairly neutral UK interest rates should help curb the upside potential, and we see risks to EUR/GBP as fairly balanced in the near term”.

“Longer term, we still expect EUR/GBP eventually to trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M.