GBP remains under pressure – Danske Bank

Analyst at Danske Bank Kristoffer Lomholt assessed the current perspectives for the British pound.

Key Quotes

“GBP fell for the fifth consecutive day versus the EUR and USD as the Bank of England continued its bond purchases”.

“UK yields were pushed substantially lower across the curve and the yield on 10-year government bonds fell to a record low as the Bank of England was unable to purchase enough bonds to reach its stated purchase target”.

“We still expect GBP to remain under pressure in the coming months, targeting EUR/GBP at 0.90 in 6M on relative monetary policy, growth and uncertainty about FDI, and portfolio flows into the UK”.

“Our short-term financial model implies that GBP actually should be weaker given the decline in UK yields. The model suggests that GPB/USD is overbought, trading 1.4 standard deviations above the estimated fair value of 1.2692 (spot ref.: 1.297), while EUR/GBP trades 0.9% below the estimated fair value of 0.8617 (spot ref.: 0.854)”.