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EUR/GBP:  We think it is difficult to see GBP strengthening near term – Danske Bank

Analysts from Danske Bank, foresee the EUR/GBP pair remaining in 0.85-0.87 in 3-12M while in the case of a no-deal Brexit scenario, they expect it to move towards parity, while if May’s deal passes, they see the cross at 0.83. They project EUR/GBP at 0.86 in 1-12M.

Key Quotes:  

“While UK PMIs have been subdued in Q1, monthly GDP data have performed better than expected However, some of the growth may be related to the preparations for Brexit and thus be temporary. With a medium-long extension of Brexit, the period with high political uncertainty is prolonged, which will likely continue to weigh on the economy, which is growing slower than before the EU referendum. We expect growth to run below 1.5% y/y in coming years.”

“With the ECB and the Fed on hold, we believe the Bank of England is on hold as well. Hence, we do not think there will be much support for GBP from relative rates.”

“GBP remains undervalued on fundamentals with our PPP estimate for EUR/GBP standing at 0.76. When the negative effects for the UK of a ‘decent’ Brexit are accounted for, we are, however, not too far from ‘fair’: our Brexit-corrected MEVA estimate is 0.83.”

“With a medium-long Brexit extension and no reason to believe May’s deal will pass nor that any cross-party talks will prove successful anytime soon, we think it is difficult to see GBP strengthening near term.”

 

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