EUR/GBP: Caught between two opposite forces – Danske Bank

The EUR/GBP will likely continue to trade around 0.84 over the next months according to analysts at Danske Bank. They see the cross moving higher if the European Central Bank turns more hawkish. 

Key Quotes: 

“The Bank of England (BoE) hiked the Bank Rate by another 25bp at the March meeting and we expect BoE to hike further over the course of the year. Relative rates have supported GBP vis-àvis EUR over the past six months but we do not expect the channel will support GBP much further. Markets have already priced in a lot of rate hikes and relative rates may start support EUR/GBP if ECB turns even more hawkish.”

“EUR/GBP is once again trading with a 0.83 handle but remains overall range-bound as expected. Looking forward, on one hand, the positive USD environment is usually benefitting GBP relative to EUR. On the other hand, relative rates now seem supportive for EUR relative to GBP. Overall, we keep our 12M target unchanged at 0.84, while we are looking for new trends in EUR/GBP.”

“A hit to global risk sentiment usually weakens GBP but if the war turns worse and/or the West imposes tougher sanctions on Russia, we are likely to see EUR/GBP moving somewhat lower again. EUR/GBP will move higher if ECB turns more hawkish. EU-UK tensions remain a risk.”