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Analysts at Danske Bank expect EUR/GBP to trade slightly lower going into the Bank of England meeting, but given that the market almost fully discounts a rate hike, they expect any rally in the GBP to prove short-lived.

Key Quotes

“The GBP has been one of the weakest performing currencies in the G10 space over the past month, as political uncertainty related to Brexit has outweighed the growing prospect of a rate hike from the Bank of England in August.”

“We could see a bit of a relief from the recent sell-off pressure in GBP from the political side after the UK Prime Minister yesterday relegated the Brexit department. However, overall we look for EUR/GBP to remain range bound near term, with Brexit uncertainty expected to remain a key source of volatility.”

“Longer term, we still expect EUR/GBP eventually to trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.8650 in 3M, 0.8400 in 6M and 0.8300 in 12M.”