EUR/GBP could rise back to 0.9325 if fear of a no-deal Brexit returns – Rabobank

Analysts at Rabobank expect the EUR/GBP pair to trade close to 0.90 in 3 months and around 0.87 on a 6-month view.

Key Quotes: 

“EUR/GBP has run into support in the 0.8850 area as investors await the next instalment of political news in the UK. Some attention will inevitably be drawn to the BoE policy meeting later this week.”

“Having reached a high around EUR/GBP 0.9148 on September 3, GBP has subsequently been the best performing G10 currency. We would argue that this move has been driven by the fact that the market had become very short of GBP and motivated by glimmers of optimism about the prospect for compromise on the issues surrounding the Northern Ireland border.”

“In the months ahead, GBP will also likely face a general election. If a no-deal Brexit is ruled out by a new government we would expect EUR/GBP to clamber down towards 0.86 in 3 months, and for cable to rise to around GBP/USD1.28. Scope for additional upside could be limited if the pound continues to be unsettled by further rounds of Brexit negotiations under a Corbyn led government.”

“If fear of a no-deal Brexit returns (on a Johnson led government) we see risk of EUR/GBP rising back to the recent high in the 0.9325 area initially and beyond towards parity if the prospect of any fresh compromise with the EU fell away.”

“Scope for any subsequent recovery in GBP would likely be dictated by how chaotic the initial stages of a no-deal Brexit proved to be.”

“Our central view has been that EUR/GBP will trade close to 0.90 in 3 months and around 0.87 on a 6 month view. This forecast has built around the assumption that Brexit will be delayed and that a deal will eventually be accepted. An election later this year would suggest that a significant revision to our 3 month forecast would likely be called for.”