EUR/GBP seen at 0.86 in 6 months, at 0.84 in 12 months: Danske Bank

The EUR/GBP currency pair is targeted to be seen at 0.86 level within the next 6 months and at 0.84 level over the course of next 12 months. Although the Brexit transition deal is, other things being equal, positive news, it is not expected to be a game-changer for EUR/GBP in the short-run. The negotiations on what the future relationship looks like are going to be much more complicated, not least with respect to the Irish border, according to the latest research report from Danske Bank.

With respect to Brexit, the Bank of England did not alter its communication despite the agreement on transition. Based on Mark Carney’s comments at a press conference after the February meeting, the BoE had already penciled in a high expectation of a Brexit transition agreement so it does not really alter the outlook for the BoE.

While the positive contribution to CPI inflation from GBP depreciation is fading, the BoE thinks domestic cost pressure is increasing, as slack has been more or less absorbed. In order to avoid a more persistent CPI inflation overshoot, it is appropriate to raise rates. The BoE still expects growth to remain above potential GDP growth over the forecast horizon.

"We still believe the BoE is heading for a May hike and we also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus," the report added.

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