EUR/GBP: Risks still skewed on the upside despite the hawkish BoE - Danske Bank

According to analysts from Danske Bank, the pound is likely to remain under pressure despite today’s tone of the Bank of England. They see risks to the upside in the EUR/GBP. 

Key Quotes: 

“EUR/GBP moved slightly lower and Gilt yields ticked 4bp higher driven by the more hawkish tone in the statement, where Kristin Forbes voted for a 25bp rate hike this time. Note, however, that Forbes is a known hawk and leaves the BoE this summer”

“The market is now pricing in an accumulated 8bp rate hike from the BoE in 2017 and 26bp by the end of 2018. We still think the market’s pricing is too hawkish, suggesting little support for the GBP driven by higher UK interest rates ahead.”

“Hence, relative rates, in our view, favour lower GBP/USD, as the Fed is slightly underpriced, while risks stemming from relative rates are more balanced for EUR/GBP, as the market has turned too hawkish on the ECB pricing as well, with a 10bp rate hike priced by March 2018.”

“EUR/GBP has fallen back below our 1-3M target of 0.87. As such, we still see risks skewed on the upside for EUR/GBP, as we expect GBP to underperform vis-à-vis the USD and EUR in coming weeks and following the triggering of Article 50.”