According to analysts at Danske Bank renewed political uncertainty remains around the corner, they continue to expect EUR/GBP to trade near 0.90 and anticipate further volatility in the run-up to the 31 October Brexit deadline.
Key Quotes:
“GBP weakened somewhat after Theresa May stepped down and Boris Johnson took office, with additional weakening stemming from a decline in domestic demand. Since August, however, the mood has turned around and markets now price a lower risk of a no-deal Brexit with EUR/GBP back to hovering around 0.88. We think that optimism will prove short-lived.”
“The Bank of England continues to be quite passive. In practice, monetary policy is unlikely to change before either 1) we see a much stronger worsening in UK data, or 2) the completion of a dramatic (or peaceful) Brexit, after which policy may move in either direction.”
“In the run-up to the Brexit deadline in October, EUR/GBP will remain volatile. Our base case continues to be an extension of Brexit and a new election. We expect EUR/GBP will settle around 0.90. In the case of a decent deal or cancellation of Brexit, we believe EUR/GBP will move to around 0.85. In the case of no deal outcome, we look for EUR/GBP approach but remain below 1.0. In terms of our EUR/GBP forecasts, we keep these unchanged at 0.90 throughout the forecast horizon.”
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