EUR/GBP seen returning to 0.90 in 6-month – Danske bank

Morten Helt, Senior Analyst at Danske Bank, believes the European cross could return to the 0.90 area in the medium term.

Key Quotes

“The GBP has rallied significantly since Donald Trump won the US presidential election, as the possibility of a closer economic relationship between the UK and US in the future justifies a lower Brexit risk premium priced on the GBP. Moreover, the High Court’s ruling on Brexit implies that a ‘softer’ Brexit has become more likely”.

“Thus, we have revised down our forecasts to 0.86 (previously 0.90) in 1M and 0.88 in 3M (previously 0.91). In the near term, we could see a further GBP rally given the heavy short GBP positioning but expect the cross to settle in the 0.83-0.88 range in the near term”

“However, weak UK fundamentals still justify a weak GBP to offset the negative consequences of Brexit and we expect renewed pressure on GBP over the three to six months in the run-up to when the UK government is likely to trigger Article 50”.

“We target EUR/GBP at 0.90 in 6M (previously 0.92). Longer term, we expect EUR/GBP to stabilise to some extent, on attractive valuations and reduced uncertainty as more details about Brexit become available. We target EUR/GBP at 0.90 in 12M”.