Further volatility expected in EUR/GBP – Danske Bank

Allan von Mehren, Chief Analyst at Danske Bank, expects some Brexit-related volatility to hit the European cross in the next periods.

Key Quotes

“EUR/GBP bounced yesterday on the back of EU's Chief Brexit negotiator Michel Barnier’s briefing on Brexit, where he presented a relatively hard stance on Brexit by for example stressing that a transition agreement is not a given”.

“While the EU’s hard stance on Brexit is clearly GBP negative as it illustrates that Brexit negotiations are likely to be complicated and could drag out, it is important to remember that this is part of the political 'game' where both sides (EU and UK) are preparing/positioning for negotiations”.

“Hence, it is fully expected that the divergence between the UK's and EU's stance on Brexit is high now as negotiations are about to start, and we are going to hear a lot of noise from now until the EU summit on 22 -23 March”.

“Focus now turns to PM Theresa May’s speech on Friday. We expect EUR/GBP to remain volatile within the 0.8770-0.8925 range in the short term. We still look for EUR/GBP to move significantly lower longer term when we have more clarification about Brexit. We target 0.84 in 12M”.