In the past month, EUR/GBP has continued its move lower, now trading around mid-0.85. Economists at Danske Bank analyze the pair’s outlook.
GBP strength to subside
We attribute the move lower to rates markets pricing in more rate hikes from the BoE. However, we believe it is only a question of time before markets will scale back on BoE rate hike expectations. We highlight that whether the aggressive BoE market pricing will subside or inflation continues to surprise, we see it as headwinds for GBP.
We do not see the global investment environment nor the relative growth outlook to create significant divergence between EUR and GBP. We thus expect the cross to move back towards 0.87-0.88 over the coming 12 months.
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