EUR/GBP seen lower in the longer run – Danske Bank

Senior Analyst at Danske Bank Piet Christiansen assessed the recent performance of the Sterling following Brexit headlines.

Key Quotes

“There was a strong rally in GBP yesterday on the back of comments from the EU’s Barnier. GBP rallied more than 1% versus EUR and USD and EUR/GBP broke below 0.90 on the news”.

“As such, GBP price actions underscore how sensitive GBP is to Brexit news, and while the comments from Barnier in reality are not major news, it could potentially trigger a temporary relief in GBP and the Brexit risk premium priced in the FX option market”.

“However, note that both the UK and EU still have 'red lines' that do not appear to be compatible and we still expect significant noise and volatility in the coming months as the Brexit end-game moves closer. EUR/GBP could soon settle above 0.90 again”.

“Longer term, we remain bearish on EUR/GBP on Brexit clarifications and valuations but stress that the timing of a break lower in EUR/GBP is impossible to predict”.