Danske Research discusses EUR/GBP medium-term outlook.

"EUR/GBP remains remarkably sticky around the 0.87 mark after rebounding since the beginning of April. EUR/GBP has been caught between two opposing forces since the onset of the war in the Middle East. On the one hand, the poor risk sentiment has put upside pressure on the cross amplified by a worsening outlook for the UK economy. This is only amplified by the recent repricing of the Bank of England, where markets have gone from pricing two cuts by YE to now two hikes. Given the weakness in the economy, especially in the labour market, this highlights the more stagflationary tendencies. This has also been reflected in the recent spread widening to Germany, where Gilts have been one of the big underperformers. On the other hand, while the UK is still a net-energy importer akin to the euro area, the energy mix in the UK slightly favours a relatively stronger GBP vs EUR. This has benefited GBP vs EUR," Danske notes.

"If further ceasefire talks prove effective, we expect the focus to return to fundamentals. We think the relative growth outlook favours a move higher in EUR/GBP and expect markets to scale back on BoE pricing of hikes. We expect the BoE to remain on hold for the remainder of the year," Danske adds.