Analysts at Nordea explained that sterling has been hammered (in particular versus the USD) by comments from both Mark Carney and Trade Secretary Liam Fox hinting that the implied probability of a no-deal Brexit is on the rise.
Key Quotes:
“At the same time as the no-deal scenario looks increasingly likely, calls for a new referendum are also gaining traction in the UK – and judging from betting markets, the implied odds of Britain actually exiting the EU by March 29 next year has fallen below 50%, in the aftermath of Carney and Fox’s comments.”
“This development widens the potential outcome space of the Brexit-negotiation severely.”
“Odds of a hard and sudden Brexit are on the rise and the chance of a new referendum or a material prolongation of the negotiation-process the same, while the likelihood of an orderly exit by March 29 seems to vanish by the day. This leaves a tricky scenario ahead for Bank of England, as they try to limit the downside in GBP due to inflation considerations. The best way to bet on GBP weakness is via short cable still (rallies above 0.90 in EUR/GBP should be sold into).”
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