Positive on euro, bearish on sterling – Deutsche Bank

Analysts at Deutsche Bank have turned more positive on the euro, but remain bearish sterling in the wake of recent macroeconomic events.

Key Quotes

“Euro to rise toward 1.16 vs. dollar

• Euro rally since April has paused, but currency remains around multi-month highs
• We have turned more positive on the euro

            − Dollar less responsive to Fed, ECB policy

            − More room to price positive surprise from Macron / Merkel pro-EU alliance

            − Positioning structurally underweight euro − Market reluctant to price the Fed rate path

• Expect rally to resume, euro to rise toward 1.16
• Drivers traditionally explaining EUR/USD moves broken down, correlations at multi-year lows”

“Bearish sterling

• UK election outcome adds downside...

          − Political paralysis, increased risk of “crash Brexit” to weigh on currency

• ...to an already bleak fundamental sterling outlook 

         − Negative macro outlook as real income shock from lower sterling kicks in, political / Brexit uncertainty hurts confidence and spending plans

         − Very limited room for BoE to provide stimulus, given rising inflation; any hikes, while short-term sterling positive, would weaken macro picture

• We remain bearish sterling vs. dollar, euro, swiss”