The EUR/GBP continued to pull back on Monday and fell to the lowest level in four weeks near 0.8580. According to analysts from Danske Bank, the cross will head north in a three-month period and forecast at 0.89.
Key Quotes:
“We expect BoE to continue to hike policy rates until February next year, with risks skewed to more tightening given the inflationary nature of the fiscal support measures.”
“In the near-term, we expect high volatility in the cross amid crucial BoE meetings and budget presentation. We forecast EUR/GBP at 0.89 in 3M as we expect to see fragile risk appetite, where liquidity concerns weigh on GBP. Further out, we remain cautiously optimistic that the cross will head lower as a global growth slowdown and the relative appeal of UK assets to investors are a positive for GBP relative to EUR.”
“The key risk to see EUR/GBP moving above 0.90 is a sharp sell-off in risk where capital inflows fade and liquidity becomes scares. Other risks are the outlook for the UK economy deteriorating sharply compared to the Euro Area and renewed escalations in EU-UK tensions.”