EUR/GBP to remain in 0.86-0.89 range near-term – Danske Bank

According to analysts from Danske Bank, if the UK Parliament approves May’s Brexit plan, it would lead to a significant decline in EUR/GBP.  

Key Quotes:  

“The growth picture has become weaker, as Brexit uncertainties are weighing on investments and as global growth has slowed.”

“The Bank of England (BoE) voted unanimously to keep the Bank Rate at 0.75% in February. Despite recognising that growth has slowed, the bank maintains its hiking bias. We still expect the BoE to hike in November 2019, while the market is pricing in the next hike in June 2021. If there is a no-deal Brexit, we expect the BoE to ease monetary policy.”

“GBP remains fundamentally undervalued: our G10 MEVA model puts EUR/GBP at 0.78 (our Brexit-corrected MEVA estimate for the cross is around 0.83), while our PPP estimate is 0.76. Brexit remains as the largest risk to our forecast, and will keep GBP undervalued and volatile until further clarifications.”

“Our EUR/GBP forecast is based on our main scenario that May’s Brexit plan will eventually be approved by parliament. We expect this to pave the way for a significant decline in EUR/GBP. However, it is a close call, and the key risk to our bullish GBP view is that Brexit clarifications are dragged out – even beyond 29 March if Article 50 is extended – and that the GBP appreciation would consequently be much more moderate and materialise later than our forecast implies.”

“In the near term, we expect EUR/GBP to remain in 0.86-0.89 range. We see EUR/GBP at 0.875 in 1M, 0.84 in 3M and 0.83 in 6 and 12M.”