Analysts at Danske Bank expect the EUR/GBP pair to fall toward 0.83 in a twelve month period amid growth differentials between the United Kingdom and the Eurozone.
Key Quotes:
“We still expect EUR/GBP to move lower in H2, although the declines will be more gradual than what we saw in Q1, when GBP benefitted from investors pricing out the no deal Brexit risk premium and the fast mass vaccinations in the UK. In addition, the Bank of England is not.”
“The reason why we expect EUR/GBP to move lower is that the UK is likely to grow faster than the euro area, partly because the UK is still ahead with its vaccination programme. The delta variant has delayed, not derailed, the full re-opening. In addition, the Bank of England (BoE) is not struggling with low inflation and is expected to tighten monetary policy earlier than the ECB.”
“Risk is that both the Fed and the BoE are more patient removing accommodation than what we expect right now. There are also political risks from the negotiations between the EU and the UK on the Northern Ireland protocol.”