Vladimir Miklashevsky, Senior Strategist at Danske Bank, noted the European cross could slip back to the 0.83 area within a year’s view.
“GBP gained overnight following a report by The Telegraph that Theresa May’s Brexit war Cabinet has agreed on a new ‘backstop’ as a last resort to avoid a hard Irish border, meaning that the UK will tell the EU that it is prepared to stay in the customs union beyond 2021”.
“The Irish border issue remains one of the key problems for the Brexit negotiations and it is still unsure whether this new agreement within the UK government is enough to push Brexit negotiations forward”.
“FX price actions underscore that Brexit remains a key driver for GBP. Hence, while we still expect GBP to gain support from relative rates as a Bank of England rate hike moves closer, the trigger for EUR/GBP eventually breaking significantly lower towards our 12M forecast of 0.83 remains Brexit clarification”.