EUR/GBP seen at 0.92 on a three-month view – Rabobank

EUR/GBP is trading close to the 0.90 level as the pair has been supported at the 0.895 mark. Economists at Rabobank expect EUR/GBP to surge towards 0.92 fueled by no Brexit agreement and prospects of negative interest rates.

Key quotes

“EUR/GBP has been unable to push convincingly below the 0.895 level suggesting that GBP’s good run may have run out of steam. In the wake of continued Brexit fears and continued UK labour market vulnerabilities we would favour buying EUR/GBP on dips with the view that another move back above the 0.90 level is likely.”

“Brexit related uncertainties on top of the shock of the covid-19 lockdowns has meant that the market is reluctant to dismiss the possibility that the BoE could at some point be forced into using negative interest rates. Insofar as the UK has a current account deficit, in contrast to the other countries that have used a negative rate, it is possible that GBP could be particularly vulnerable in this scenario.” 

“The combination of a no deal Brexit and negative interest rates could push EUR/GBP towards parity. For now, we see EUR/GBP pushing to 0.92 on a three-month view on Brexit uncertainty before recovering back towards 0.89 on a six-month view.”