EUR/GBP to drop towards 0.83/0.84 as the UK outpaces the vaccine roll-out in the EU - Nordea

FXStreet reports that economists at Nordea keep liking the pound as a result of a successful vaccine roll-out but medium-term perspectives remain unclear due to the second round of Brexit negotiations on Services.

“There are reasons to be a little bit pessimistic on goods trade with the EU because of the significant layer of red tape, that will no doubt dampen trade between the two parties. Services are more of a fickle pickle; the UK has been the clear entry hub for financial services in- and out of the EU and the EU’s pull on financial services passporting rules is going to have a definite impact on the UK economy as a whole. At some 7% of the UK economic output, the financial services sector is not insignificant.”

“Going forward, we assume that the GBP optimism continues due to a successful vaccine roll-out in the UK due to the following three reasons: The UK’s rapid authorization of vaccines and subsequent rollout compared to peers. A much more clever wording of contracts with suppliers than EU and (almost) the only country to decide on a de facto 1-jab (or a slow 2-jab) regime of the vaccine, which has proven to be the best approach by now.”

“We expect the pound to diminish the valuation differential to our model-based fair value and look for levels around 0.83-0.84 in EUR/GBP.”