Greek uncertainty continues to impact euro sentiment

GBP/EUR has recently hit an 8-year high above 1.44. The combination of more hawkish UK monetary policy comments and ongoing uncertainty about Greece's prospects has fuelled the rally. 

The break higher opens the way for a move up towards 1.50 over the coming months, given the diverging policy outlooks in the UK and the euro area and the likelihoodthat Greek uncertainty continues to impact euro sentiment. Further out, however, the prospects of a sustained rise in GBP/EUR are limited. 

Assuming there is some resolution to the Greek crisis (supported by an eventual agreement on debt relief), the focus is likely to turn to the relative undervaluation of the euro particularly if, as we expect, euro area growth continues to post a steady recovery. 

"Brexit uncertainty, fiscal austerity, and the UK's substantial external deficit with the euro area are also likely to weigh on the pound over the medium term. GBP/EUR is expected to be around 1.49 in Q3, but look for a steady move lower thereafter", says Lloyds Bank.