EUR/GBP: Liquidity concerns to weigh on GBP in the near-term – Danske Bank

Analysts at Danske Bank forecast the EUR/GBP cross at 0.86 in twelve months, but they expect fragile risk appetite including, specific concerns regarding the United Kingdom to weigh on GBP in the near term.

Key Quotes: 

“Given the sizeable expected increase in the twin-deficit, we see a level shift having taken place in EUR/GBP, with the cross to trade in a higher range. 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 selloff in risk where capital inflows fade and liquidity becomes scarce. This risk has only increased with the outlook of further unfunded fiscal easing. Other risks are the outlook for the UK economy deteriorating sharply compared to the Euro Area and renewed escalations in EU-UK tensions.”