According to analysts from Danske Bank, almost everything has turned against the sterling. They forecast EUR/GBP at 0.93 in one month and at three months; at 0.90 in 6M and at 0.87 in 12M.
“Most factors are working against GBP now. First, relative rates, as the Bank of England has cut rates but the ECB has not. Second, the UK government’s handling of the coronavirus pandemic. Third, the big current account deficit, which puts GBP at risk when capital flows stop. Also, time spent fighting the coronavirus by both the UK and the EU means less time to negotiate a deal before the end of the year, increasing the risk of a big trade shock by 1 January 2021.”
“We forecast EUR/GBP at 0.93 in 1-3M. We will probably see some of the current risk premium reverse and we expect the cross at 0.90 in 6M. Our baseline is also that we will have a simple trade agreement by the end of the year, which should send EUR/GBP lower again and we see 0.87 in 12M.”