EUR/GBP seen lower in 6-12 months – Danske Bank

The European cross is expected to grind lower in the 6-12 month horizon, according to Senior Analyst at Danske Bank Kristoffer Lomholt.

Key Quotes

“EUR/GBP bounced on Friday on the back of the much weaker than expected UK GDP data for Q1, which came out at 0.1% q/q down from 0.4% q/q in Q4 17”.

“Market’s pricing of a rate hike from BoE in May has been slashed to an implied 25% probability, which is fair given the weak Q1 data and BoE Governor Carney’s comments ten days ago, when he hinted that a rate hike in May might not be a done deal”.

“This week’s UK PMI data provides the last data input before the BoE MPC meeting on 10 May and will thus be directional for EUR/GBP this week. Another set of disappointing data could be the final nail in the coffin for a rate hike in May, which then could be postponed to later in Q2 or Q3”.

“We still expect EUR/GBP to trade lower on a 6-12M horizon, and from a risk/reward perspective, we see value in selling EUR/GBP on rallies above 0.8850”.