EUR/GBP to fall below 0.70 in early 2016

Flatter forward rates are seen in the UK, as a full rate hike not priced into the SONIA curve until very late in 2016, despite repeated comments from MPC members that rates will rise sooner than that. 

"As markets move to reprice the start of the Fed normalisation sooner than currently discounted, a major side effect should be higher rate expectations in the UK, from the current low starting point. GBP outperformance on the crosses therefore remains a theme in our forecasts, with EUR/GBP expected to break back below 0.70 in the early part of 2016", says RBC Capital Markets.

Poor performance of GBP in Q3 shows temporary signs of reversal in October and November, with gains against most of the G10 currencies carrying the TWI 1.3% higher. Widening spread rate's support caused in solid performance of the GBP. The UK side has done relatively little, with EUR/GBP losses in particular mostly driven by lower EZ rates. 

"Going forward, we remain constructive for GBP, largely on the back of conventional policy expectations", added RBC Capital Markets.