EUR/GBP: downside risks if BoE hesitant that hike is a one-off - Danske Bank

The direction for EUR/GBP from here will crucially depend on whether the Bank of England signals that the November hike is a one-off or no, according to analysts from Danske Bank. 

Key Quotes: 

"The direction for EUR/GBP from here will crucially depend on whether BoE signals that the November hike is a one-off. With the market priced some 90% for the hike, this should in itself deliver only limited GBP strength but a knee-jerk reaction in EUR/GBP to test the 0.88 level could be on the cards.”

“If the BoE manages to convince the market that the hike is a one-off, then the cross should stick to the 0.87- 0.90 range but we emphasise that there is a significant risk the BoE will fail to conjure up speculation on further nearterm tightening. Coupled with negative EUR momentum post the ECB’s dovish tapering, this heightens the risk of a move below 0.88 on the announcement.”

“We still target this level (0.88) in 1-3M, as we think the BoE will be keen to stress its data and Brexit dependence, which we deem limits the scope for further policy tightening on a 12M horizon. We still expect EUR/GBP to edge only a little lower on a six to 12M horizon.”