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Economists at Danske Bank still believe the pound will strengthen in 2021 on higher short-term rates, a fast UK vaccination process and much lower Brexit uncertainties. Thus, the EUR/GBP pair is seen moving down towards 0.87 in 12 months. 

Key quotes

“The major Bank of England uncertainty of the year is whether the BoE will cut the Bank Rate into negative territory. We are in the camp that believes the BoE will keep it unchanged at +0.1%, which means higher short-term gilt yields are likely to support the GBP.”

“While the Brexit deal did not send the GBP higher to the extent that we thought it would, we still believe GBP will strengthen in 2021, driven by a higher short-term interest rate spread, a faster COVID-19 vaccination process and much lower Brexit uncertainties.”

“We lift our projections, now forecasting 0.89 in 1M, 0.88 in 3M and 0.87 in 6-12M.”