EUR/GBP to remain range bound around 0.8800 – Danske

The EUR/GBP pair dropped momentarily below 0.8800 on Wednesday after higher-than-expected inflation data from the United Kingdom. Analysts at Danske Bank see the cross hovering around 0.8800 over the next months, limited by opposing forces. 

Key quotes:

“The past month, EUR/GBP has returned to trading above the 0.88 mark after systemic risk fears have broadly subsided. Further out, EUR/GBP is, in our view, stuck between opposing forces. On the one hand, we expect relative rates and near-term broad EUR optimism to act as a tailwind for the cross."

“On the other hand, we see the global growth slowdown and the relative appeal of UK assets acts as a headwind. At present, we do not see the relative growth outlook or global investment environment to create significant divergence between EUR and GBP. We thus expect the cross to remain range bound around 0.88.”

“The key risk to seeing EUR/GBP substantially above our projection is a sharp sell-off in risk where capital inflows dry out and liquidity becomes scares. Other risks are the outlook for the UK economy deteriorating sharply compared to the Euro Area.”