According to analysts from Danske Bank, expect Bank of England interest rates to be neutral for the pound in the near-term. They see Brexit as the key driver.
Key Quotes:
“As expected, the Bank of England meeting did not cause any significant reaction in EUR/GBP. The market is pricing the next full 25bp hike in the UK to arrive in November 2019, which is relatively dovish compared with our call for a hike in May 2019. However, given the uncertainty surrounding Brexit, we see little prospect of a repricing of the Bank of England. Hence, in our view, UK interest is set to remain neutral for GBP in the near term.”
“Instead, we expect Brexit to remain the key driver and source of volatility for the GBP until a deal is reached. In our base case, we target EUR/GBP at 0.83 in 3M, assuming that a decent Brexit is reached within the period.”
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