Buy the EUR/GBP towards 0.83 - Natixis

Sterling recovered over the course of last week against a US dollar penalised by the absence of news concerning Donald Trump’s programme and a euro penalised by the political risk notes Nordine NAAM, Research Analyst at Natixis.

Key Quotes

“The British currency also drew strength from some good macroeconomic data, notably the 2% GDP growth recorded in 2016 (vs. 1.7% for the Eurozone in 2016). Finally, the absence of news concerning negotiations with the EU also favoured the currency. However, at the meeting of the European Council scheduled on 9 March, Theresa May could trigger Article 50. It will then take almost 3 months for the European Parliament to validate Brexit.”

“After that, negotiations will get under way and last 18 months, bearing in mind that it will again take 3 months for the European Parliament to ratify any agreements. While transitional agreements could be negotiated, uncertainties will remain significant, especially this year given the many elections (Netherlands, France, Germany and, in 2018, Italy), as populist parties are on the rise nearly everywhere.” 

“In this contest, the European Union cannot afford to cut much slack to the UK. Therefore, while the EUR/GBP could correct temporarily towards 0.83 because of the European political risks, the pair should go on to rebound towards 0.89, bearing in mind 3-month RR 25D are excessively low.”