EUR/GBP: Pound still set to benefit from vaccinations – Danske Bank

According to analysts from Danske Bank, the pound will continue to benefit from faster vaccinations and see the EUR/GBP pair near 0.83 in a six to twelve month period. They warn that a hit to global risk sentiment could hit the pound, just like what happened a few weeks ago.

Key Quotes: 

“The UK is gradually reopening supported by fast vaccinations, which, combined with businesses getting used to the new EU-UK trading relationship, means that the outlook for the UK economy looks much brighter. We expect the UK economy will outperform the euro area this year.”

“We think Brexit as a theme has moved into the background now, although the EU and the UK are still fighting over the Northern Ireland protocol and are negotiating on cooperation on financial services. The former is a political risk to look out for in coming months.” 

“We expect GBP can strengthen further this year but we also recognise that it has come a long way with a lot of positivity already priced in. Positioning is somewhat stretched and hence we will not be surprised if GBP takes a breather near-term fluctuating within the 0.850-0.865 range. As EUR/GBP has moved lower faster than we projected last month, we have lowered our 1-3M forecast to 0.85. We expect EUR/GBP to move closer to 0.83 in 6-12M.”