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22 May 2015
EUR/GBP targets 0.69 in 6-month – Danske Bank
FXStreet (Edinburgh) - Jens Pedersen, Senior Analyst at Danske Bank, sees the BoE hiking in November and the cross heading to sub-0.70 levels in the medium term.
Key Quotes
“Looking at our FX short-term financial models we currently observe the biggest misalignments in GBP crosses as the GBP – post the election relief rally – now looks overbought”.
“For instance, EUR/GBP now trades 2 standard deviations below the model’s fair value estimate of 0.74. While this highlights a risk of a short-term correction lower, we still expect a stronger GBP in the coming six months”.
“Although headline inflation is low at this point, we think that the MPC members will judge that the medium-term inflation outlook calls for a tighter monetary policy”.
“We expect Bank of England to hike in November this year, which is significantly earlier than markets currently price (i.e. Q2 16). Consequently, we expect relative rates to be an important factor in pulling EUR/GBP down towards our 6M target of 0.69”.
Key Quotes
“Looking at our FX short-term financial models we currently observe the biggest misalignments in GBP crosses as the GBP – post the election relief rally – now looks overbought”.
“For instance, EUR/GBP now trades 2 standard deviations below the model’s fair value estimate of 0.74. While this highlights a risk of a short-term correction lower, we still expect a stronger GBP in the coming six months”.
“Although headline inflation is low at this point, we think that the MPC members will judge that the medium-term inflation outlook calls for a tighter monetary policy”.
“We expect Bank of England to hike in November this year, which is significantly earlier than markets currently price (i.e. Q2 16). Consequently, we expect relative rates to be an important factor in pulling EUR/GBP down towards our 6M target of 0.69”.