GBP stays under pressure – Danske Bank

Jakob Christensen, Chief Analyst at Danske Bank, noted the Sterling remains under pressure for the time being.

Key Quotes

“Yesterday’s session saw the GBP erase the gains following last week’s surprisingly hawkish Bank of England (BoE) meeting. Yesterday’s drop was primarily driven by BoE’s governor Mark Carney stating that “Now it not the time to raise interest rates” whilst referring to subdued domestic inflationary pressures and indications of economic activity levelling off”.

“Also a story of a possible UK downgrade weighed on the sterling. Going forward, it remains our view that the UK election outcome was the worst possible for GBP and we stress that sterling will likely stay in undervalued territory during the Brexit talks, but be highly sensitive to progress in discussions”.

“We see EUR/GBP in the 0.84-0.90 range near term. While clarity on Brexit terms should brighten the skies for the pound, appreciation potential should be limited by notably a terms-of-trade deterioration. We look for EUR/GBP to trade around 0.87 throughout on a 1-12M horizon, i.e. any appreciation pressure has been postponed”.