EUR/GBP to slide towards 0.85 as sterling benefits from faster vaccinations – Danske Bank

EUR/GBP has continued to move lower, helped by a fast UK vaccination process and the Bank of England (BoE) ruling out negative rates for now. Economists at Danske Bank still believe sterling will strengthen this year driven in particular by the faster vaccination process and forecast the EUR/GBP pair at 0.85 on a six-to-twelve month view. 

Key quotes

“Near-term the economic outlook still looks grim amid the third national lockdown. However, the UK is vaccinating at a much faster pace than the rest of Europe, which, combined with the Brexit deal, means the UK is set to outperform the rest of Europe beyond Q1 21.”

“GBP strengthened after the recent BoE meeting, where it did not sound like the BoE was about to cut rates into negative territory causing a repricing. We expect BoE to keep the Bank Rate unchanged at +0.1%. This view, however, is mostly priced by now.”

“We expect the EUR/GBP to remain in the 0.87-0.88 range for now. We expect the cross to move lower when it gets more clear that the UK will exit the pandemic as one of the first countries, benefitting from its ‘first dose first’ strategy. We forecast EUR/GBP at 0.86 in three months and 0.85 in six-to-twelve months.”