EUR/GBP to trade around 0.90 until a deal is agreed – Danske Bank

According to analysts from Danske Bank, the EUR/GBP pair will likely trade around 0.9000 until a Brexit deal is agreed, likely during the fourth quarter. The see the pair trading at 0.86 in a six month period. 

Key Quotes: 

“UK data have surprised markedly on the upside of late as the UK economy has gradually opened up. The stringency index remains elevated though and mobility data suggest activity is still depressed. Brexit is now coming back onto the agenda and the persistent uncertainty will likely put a limit to how fast investments will recover in H2.” 

“Lately the BoE has made it clear that negative rates are in the toolbox but not set for immediate use. Despite the pre-summer QE increase, we think it is likely that the BoE will expand the QE programme by an additional GBP50-100bn in the autumn.”

“GBP remains caught in the middle of risk sentiment and Brexit with the latter set to get more attention near term. We still expect EUR/GBP to trade around 0.90 until a deal is agreed – likely mid-late autumn – but the cross may go as high as 0.92 on setbacks in risk of Brexit. Our base case remains a simple free trade agreement covering goods and we expect the cross to move lower to around 0.86 when a deal is in sight. We lower our 3M forecast to 0.88 (prev 0.90) as this is now the horizon where a deal could land. We keep our 6-12M forecast at 0.86.”