GBP negative against EUR in 2016 - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) - Research Team at Nomura, believes that the tug-of-war between Brexit uncertainty and monetary policy divergence will be the key driver of EUR/GBP this year, in addition to global risk sentiment.

    Key Quotes

    “While rate spreads have been stable recently, Brexit uncertainty has started influencing EUR/GBP gradually, as suggested from the rise in GBP/USD implied volatility. The tug-of-war is now slightly tilted toward GBP negative against EUR.

    We expect rate spreads to resume widening, as the ECB easing is likely in June, while the BoE is still on track to hike its policy rate by the year-end. However, 25bp widening in the rate spread can be completely offset by Brexit uncertainty, if current levels of uncertainty sustain into the referendum. As we expect the referendum to be held in September, we believe GBP performance in Q3 will be especially weak if current level of uncertainty continues.

    The recent GBP weakness is explained not only by Brexit uncertainty but also by globally weak risk sentiment, in our view. Thus, even if the tug-of-war continues for now, EUR/GBP appreciation is expected to pause once global equity markets calm down. The likely delay of a BoE rate hike and Brexit uncertainty will work negatively for GBP for now, but we still expect GBP to appreciate against EUR in 2016.”
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