EUR/GBP: Non-Brexit factors set to weigh on sterling - Danske Bank

Analysts at Danske Bank think markets will downplay the risk of a no-deal Brexit as a driver for the GBP in the period ahead.
 
Key Quotes: 

“EUR/GBP has weakened substantially since the breakdown of cross-party talks led UK Prime Minister Theresa May to step down and the risk of a no-deal Brexit increased. We expect nonBrexit drivers to weaken the GBP further over the summer. In particular, we see weakening macro data as a new key driver.”

“The extension of Brexit prolongs the period of uncertainty, which we expect to continue to be a drag on the economy. Q1 data was quite strong but we are now seeing both GDP and PMIs coming down and the negative surprise potential has risen. We expect this to be a factor in lifting EUR/GBP towards 0.9.”

“Slightly weaker UK data, global sentiment and the ECB are new headwinds for EUR/GBP. A large repricing is probably unlikely, as relative fundamentals are still good, even if they become slightly less so. In turn, we revise our expectations for the GBP to a weaker path and forecast EUR/GBP at 0.90, trading in a range of 0.86-0.91.”

“We lift our EUR/GBP forecast to 0.90 (previously 0.86) and expect a higher trading range of 0.86 (in case of renewed optimism on Brexit) to 0.91 (further weakening of data and worsening of sentiment on Brexit).”