GBP stays under pressure, looks to May – Danske Bank

Jens Sorensen, Chief Analyst at Danske Bank, noted the stance on the Sterling remains fragile, with May’s speech later today being the salient risk event.

Key Quotes

“Furthermore, the return of Brexit fears has led to a sell-off in the GBP. However, the sell-off lost momentum during the session yesterday and EUR/GBP fell back below the 0.88 after trading above 0.8850 temporarily”.

“Today, UK Prime Minister Theresa May’s speech on Brexit plans will attract the market’s attention, and we are probably in for another volatile session in

GBP crosses”.

“Although GBP looks a bit oversold short term, we still see risks skewed to the upside for EUR/GBP today as the market might respond to May’s hard stance on Brexit”.

“However, remember that May’s speech is not the only milestone for GBP this month as the Supreme Court ruling also is due any time soon. If the Government loses in the Supreme Court appeal, it has to negotiate with the parties in parliament in order to secure a vote in favour of triggering Article 50 and thus making a hard Brexit less likely”.

“Given the past weeks’ sell-off, this could lead to a temporary short-covering rally in GBP. However, we still expect GBP to remain under pressure in coming months as the triggering of article 50, which we expect by the end of March, moves closer”.

“We have lifted our 1M EUR/GBP target to 0.89 (previously 0.84) and 0.88 (0.87) in 3M but stress that the risk is skewed to the upside in the near term. Longer term, we still expect EUR/GBP to stabilise within the 0.84-0.88 range, targeting the cross at 0.86 in 6M and 0.86 in 12M”.