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

Analysts at Danske Bank give their views on the European cross following the BoE event yesterday.

Key Quotes

“EUR/GBP traded higher on the announcement and was shortly above the 0.88 level. Especially the 7-2 vote in favour of keeping the Bank Rate unchanged might have been a disappointment for some GBP long players who had expected a more divided MPC (i.e. a 6-3 vote). With an August rate hike still in sight in our view, we see relative interest rates as neutral for EUR/GBP for now, but expect the GBP to eventually gain support from the rate channel. We target 0.88 in 1M and 0.8650 in 3M”.

“Longer term, Brexit remains a key driver for the GBP and while uncertainty remains high, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations. The turn in capital flows and FDI flows back into the UK, as indicated in the latest balance of payment data, suggest that a key headwind to the GBP seen in Brexit is reversing, supporting the case for additional GBP appreciation in the medium term. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M (0.84)”.