EUR/GBP cross to mostly trade within the 0.84-0.85 range ahead of the UK election – Danske Bank

Analysts at Danske Bank expect the EUR/GBP cross to mostly trade within the 0.84-0.85 range ahead of the election targeting 0.84 in 1M.

Key Quotes

“Looking at the past UK elections, there is no clear conclusion about how general elections influence the exchange rate: in 2010 EUR/GBP declined 1.7% in the two weeks prior to Election Day and in 2015 EUR/GBP rose 3.3% in the last week prior to the election. We do not expect the UK election to be a significant driver for EUR/GBP this time as a large Brexit risk premium is already priced in the GBP and the GBP is already undervalued according to our Medium-term Valuation Model (MEVA).”

“The medium-term outlook for EUR/GBP depends on the outcome of the election. In our main scenario that PM Theresa May consolidates power, the trading range for EUR/GBP should be in for a modest shift lower amid a reduction in tail risks of a ‘no deal Brexit’. We target EUR/GBP at 0.84 in 3M and 0.83 in 6-12M but stress that we still expect the cross to remain volatile with the range of 0.82-0.8650 and remain very sensitive to the development in the Brexit negotiations.”