Nordea Research discusses EUR/GBP outlook and flags a scope for further gains towards 0.96 in 1-3 months.
“The above-mentioned factors led EUR/GBP to peak last week at 0.949 – a level not even seen during recent years of Brexit turmoil. After some stabilisation Friday, however, the EUR/GBP is now trading around 0.92. While it therefore may seem like there is a long way up to 1.00, we would still not rule out that scenario. At least, we do not think we have seen the highs in EUR/GBP yet,” Nordea notes.
“We have constructed a fair value model in which we have included relative QE programmes from the ECB and BoE, longer-term swap rates and Composite PMIs. We assume that i) the announced asset purchases are done linearly through 2020, ii) GBP swap rates are depressed around 20-25 bp more than the corresponding EUR rates, and iii) the UK economy takes a slightly harder hit in the next three months than the euro area.
Our model depicts that EUR/GBP could move to levels around 0.96 in the coming 1-3 months before seeing some stabilisation in H2 2020,” Nordea adds.