Brexit tensions are rising and may weigh on sterling in coming months, analysts warn Danske Bank. They also point out that relative interest rates have weighed on the EUR/GBP for quite a while, but not anymore.
Conclusions to keep in mind:
“Negotiations between the EU and the UK over the implementation of the Northern Ireland protocol are still worth keeping an eye on. Tensions are running high, which could weigh on the GBP in the coming months.”
“EUR/GBP has trended higher of late. Looking ahead, on the one hand, the positive USD environment tends to benefit GBP relative to the EUR. On the other hand, relative rates now seem to support the EUR relative to with GBP. Overall, we keep our EUR/GBP 12-month target unchanged at 0.84 even though we are likely to see some support for the cross in the near term.”
“A hit to global risk sentiment usually weakens the GBP, but if the war worsens and/or the West imposes tougher sanctions on Russia, we are likely to see EUR/GBP move somewhat lower again. EUR/GBP it will rise if the ECB becomes more aggressive. Tensions between the EU and the UK remain a risk.”
Source: Fx Street
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