EUR/GBP to move slightly lower towards 0.84 – Danske Bank

EUR/GBP has been volatile lately but and is trading close to 0.85 after the Bank of England (BoE) initiated its hiking cycle by hiking 15bp to 0.25%. Economists at Danske Bank remain bullish on the pound and lift their 12-month target to 0.84. 

Aggressive BoE market pricing

“We still believe EUR/GBP will move slightly lower in 2022, as the ‘positive USD’ environment is usually also benefitting GBP versus EUR.”

“We have lifted our 12M target to 0.84 (from 0.83) given the aggressive BoE market pricing. The (in our view) too aggressive BoE market pricing and renewed Brexit uncertainties may put some upward pressure on EUR/GBP near-term or at least increase volatility.”

“A hit to global risk sentiment could hit GBP. GBP would also take a hit if the BoE keeps monetary policy accommodative for longer than currently expected. Stagflation may become more pronounced in the UK compared to the euro area. EU-UK tensions remain a risk.”