EUR/GBP expected to advance towards 0.90 – Danske Bank

Senior Analyst at Danske Bank Morten Helt recommends buying the European cross with target around the 0.90 area.

Key Quotes

“EUR/GBP has fallen sharply over the past few weeks, as post Brexit data out of the UK has been stronger than feared and the cross trades at the lowest level since the BoE announced its easing package on 4 August”.

“While data suggest that the UK might avoid recession in H2 16, in our view this does not rule out further BoE easing, as the BoE has indicated that it will cut rates again this year if its forecast for growth (zero growth) materialises”.

“The market is currently pricing in a 5bp rate cut from the BoE at the November meeting and 9bp in total in a year’s time. We still expect the UK economy to slow down, mainly because of lower business investments due to the political uncertainty and we think risks are skewed towards lower interest rates in the UK and a weaker GBP in coming months”.

“Thus, we recommend buying EUR/GBP for a 0.90 target on weak UK fundamentals and growth”.