Synopsis:

Danske Bank maintains a constructive outlook on the British pound, driven by a relatively hawkish Bank of England (BoE), favorable credit conditions, and global investment flows aligned with a strong USD backdrop. While UK fiscal stimulus remains supportive, the impact is now tempered by similar efforts in Germany.

Key Points:

• BoE Policy: A relatively hawkish stance from the BoE supports GBP strength, especially against lower-yielding currencies.

• Investment Flows: GBP is positively correlated with risk-on environments and tight credit spreads, which currently characterize markets.

• Growth Outlook: A fiscal boost in the UK is expected to lift growth, but the German fiscal expansion limits relative growth advantages for GBP vs EUR.

• EUR/GBP Forecasts:

  • 1M: 0.83

  • 3M: 0.82

  • 6M: 0.81

  • 12M: 0.81

Conclusion:

Danske sees room for the pound to strengthen further against the euro in the coming quarters, albeit modestly. Relative monetary policy, global credit conditions, and the UK's fiscal stance all support a gradual drift lower in EUR/GBP through 2025.