EUR/GBP could reach 0.86 in 1-month – Danske Bank

Sverre Holbek, Senior Analyst at Danske Bank, sees the European cross edging higher towards the 0.86 area in a month’s view.

Key Quotes

“Yesterday’s unexpected drop in the UK’s manufacturing PMI data (relative to the flash release) raised speculations of aggressive easing by the Bank of England (BoE) on Thursday even further, temporarily sending EUR/GBP to the highest level since 12 July”.

“Indeed, while we still await the final construction and service PMIs for UK due out in the coming days, the pressure on the BoE is sky high from both a political and financial perspective with a full 25bp rate cut now priced into the rates markets”.

“We expect the BoE to cut the Bank Rate by 25bp to 0.25%, to expand its stock of purchased assets by GBP75bn and to signal an explicit easing bias”

“Also, we cannot rule out additional easing via its Funding for Lending Scheme (FLS). As a result, despite high expectations, we still see risks skewed towards a weaker GBP on the announcement. We forecast EUR/GBP at 0.86 in 1M, 0.88 in 3M, 0.90 in 6M and 0.88 in 12M”.