Divergences in monetary policies weigh on EUR/GBP – Danske Bank

By FXstreet.com | Updated August 22, 2014 AAA

FXStreet (Edinburgh) - Morten Helt, Senior Analyst at Danske Bank, sees potential for further downside in the cross.

Key Quotes

“In its August inflation report, the Bank of England (BoE) highlighted that the amount of slack in the labour market, remains substantial, equivalent to around 1% of GDP”.

“The amount of slack remains an important factor in respect of timing the first rate hike and given the weak development in wage growth, the likelihood of a rate hike in 2014 has declined substantially”.

“All in all, however, the BoE is clearly on a very different path for monetary policy versus the ECB”.

“While the timing of the first BoE rate hike remains uncertain and will largely depend on the development in the labour market (wage growth in particular), the BoE is clearly on a very different path for monetary policy versus the ECB”.

“Hence, the case for a lower EUR/GBP, driven primarily by a divergent monetary policy outlook, remains intact and we target EUR/GBP at 0.78 in 3M (0.80), 0.77 in 6M (0.79) and 0.76 in 12M (0.77)”.

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