ExchangeRates.org.uk - The Pound to Euro (GBP/EUR) exchange rate dipped to just below 1.1850 in immediate reaction to the UK budget before a strong rebound to 31-month highs around 1.2080 following the US Presidential Election.JP Morgan expects that the likely economic developments under a Trump Administration will undermine the Euro.
Furthermore, it now expects the Pound can trade at a premium to fair value rather than a discount and justify sustained GBP/EUR gains with a potential target of 1.25.
JP Morgan expects that a Trump Administration will be a negative for the Euro-Zone economy, especially given the threat of the more aggressive trade policy.
The bank sees only limited scope for the Euro area to respond with a more aggressive fiscal policy and the burden will, therefore, fall on the ECB to support the economy through further interest rate cuts which will undermine the Euro.
JP Morgan considers that the UK economy is less vulnerable than the Euro area to US trade policies.
The bank noted that the Pound weakened in immediate response to the UK budget, but it does not consider that the losses are justified against the Euro.
It also expects that higher US yields will tend to pull UK yields higher which will support the Pound.
This content was originally published on ExchangeRates.org.uk