EUR/GBP: To remain between 0.8650/0.8850 before moving lower - Danske Bank

Brexit remains a key driver for GBP, and the negotiations should keep GBP undervalued and volatile for longer according to analysts at Danske Bank. They see Brexit clarification and fundamental valuations as a support for GBP appreciation over the medium term.

Key Quotes:

“The split vote combined with the BoE’s relatively confident view that the dip in activity in Q1 was temporary, indicates that a hike of the Bank Rate in August still is an option. We stick to our call with one hike in H2 18 and one in 2019 with the next hike likely in August, but stress that timing remains data-dependent.”

“Given the hawkish signals from the BoE, we expect relative interest rates to largely mitigate EUR/GBP upside risks stemming from Brexit uncertainty, especially as the big Brexit clashes have most likely been postponed to the October EU summit.”

“ We expect EUR/GBP to continue to trade within a range of 0.8650-0.8850 in the coming months targeting 0.88 in 1M and 0.8650 in 3M. Longer term, we still expect EUR/GBP eventually to trade lower driven by Brexit clarifications and fundamental valuations.”