GBP looks constructive in the longer run – Danske Bank

Pernille Henneberg, Senior Analyst at Danske Bank, sees GBP gathering traction in the longer run, driving EUR/GBP higher.

Key Quotes

“GBP strengthened against all G10 currencies yesterday as the UK manufacturing PMI rebounded sharply in August to 53.3 (10-month high) following the initial post-Brexit drop in July to 48.3, suggesting that the UK economy may not slow as much as previously feared”.

“While UK data has indeed been better than feared since Brexit, we note that the service PMI due on Monday is more important when determining the overall activity in the UK economy”.

“The market’s expectations of additional Bank of England easing in November has declined with just a few basis points worth of a rate cut being priced in at the moment. As such, we still expect the bank to cut by 15bp in November, which should support further EUR/GBP upside”.

“We are bearish on GBP but we stress that this view is first and foremost based on weak UK fundamentals and high uncertainty about FDIs and flows into UK due to the Brexit”.

“Our short-term financial model suggests that, in particular, GBP/USD looks overbought at the moment but we also think that the current levels in EUR/GBP are attractive for clients that want to build up long EUR/GBP positions”.