EUR/GBP has moved back to 0.86 after SNP failed to secure the absolute majority in the Scottish Parliament election. Economists at Danske Bank are still bullish on the pound and forecast the EUR/GBP pair at 0.83 on a 12-month view.
“We think Brexit as a theme has moved into the background now, but keep an eye on the EU-UK negotiations on the implementation of the Northern Ireland protocol and financial services. Especially the former is a political risk to look out for in coming months. Another Scottish independence referendum is still far away.”
“At its May meeting, the Bank of England (BoE) said that it does not intend to tighten until they see ‘clear evidence’ of a rebound. That said, the BoE is tapering the bond buying pace, signalling that QE may not be extended further (bond buying is set to expire by year-end). Eventually, the BoE is likely to tighten monetary policy earlier than the ECB.”
“We remain bullish on GBP, as we are still more upbeat on the UK than on the euro area. However, near-term, we expect EUR/GBP to trade around the current levels before the cross starts moving lower again, however more gradually than in the beginning of 2021. We still forecast EUR/GBP will trade in 0.83 in 12M.”
