According to several political commentators if a leadership challenge to PM May had not emerged by the close of yesterday then the immediate dangers to her job were likely to abate, points out the research team at Rabobank.
Key Quotes
“From the perspective of any of the would-be PMs there is good reason to save their ammunition, at least for a few weeks. Inheriting Brexit at this point of time is not an attractive proposition.”
“Arguably the next leader of the Tory party would rather take over the reins once the Brexit course has been set and their reputation cannot be tarnished by the decisions May has been forced to make. If May survives the week, GBP may take a little comfort. That said, the currency remains vulnerable and there is a risk that outlook for the pound worsens before it improves.”
“If May’s Brexit deal failed to pass through the UK parliament in early December the pressure on her to call a referendum and ask the electorate to choose between a ‘no deal’ Brexit or to stay in the EU would rise.”
“If Brexit were to be the eventual outcome, GBP would likely surge as pent up demand and investment were unleashed. However, this is not the only option that could follow the failure of the UK parliament to endorse May’s deal.”
“Despite this, the BoE may still ramp up hawkish rhetoric in an attempt to put a floor under the pound and stop an inflationary cycle taking hold. In the event of a hard Brexit we would expect to see EUR/GBP rising to 1.00 or potentially beyond.”
“Currently our central scenario is that May will be successful in pushing her deal though parliament. It would appear that this is a consensus view. If that consensus starts to shift towards a ‘no deal’ scenario over the next couple of weeks, investors are likely to lengthen their short GBP positions which could push EUR/GBP towards 0.90 and potentially above.”
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