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EUR/GBP: Forecasts revised higher – Danske Bank

Analysts at Danske Bank raised their forecast for the EUR/GBP pair, and now they see the cross at 0.87 in three months, 0.89 in six months and 0.84 in twelve months. 

Key Quotes: 

“Brexit uncertainty remains high and there is still a real possibility of a no-deal Brexit at 31 December 2020, if the EU27 and the UK cannot strike a deal on the future relationship after the transition period. Our baseline scenario remains one of further weakness in UK macroeconomic data.”

“We changed our GBP forecast profile in early January and leave 3-12M forecasts unchanged here; we target the cross at 0.87 in both 1M and 3M on a further repricing of the Bank of England and a weak economy. Further out, we believe impatience and a looming no-deal Brexit risk will send EUR/GBP higher to 0.89 in 6M. Our Brexit base case is a simple free-trade agreement and when this is in sight, we expect EUR/GBP to move back towards 0.84 in 12M.”

“If we see a strong rebound in UK confidence, investors could start pricing in our base case of a rate cut, thus sending sterling higher. Other risk factors include more positive developments in the upcoming Brexit talks and a greater-than-expected immediate positive impact of expansionary fiscal policy on economic growth.”