Jane Foley, senior FX strategist at Rabobank, suggests that for GBP investors, implications of yesterday’s parliamentary battles are still highly debatable, though one thing is for certain – it was a dire day for PM May.
Key Quotes
“For the first time since the 1970s a UK government has been beaten in parliament three times.”
“For GBP, the Grieve amendment should be taken a piece of good news insofar as it could imply that the chances of a hard Brexit has been reduced. That said, this assumption has been contradicted by Tory Leave supporter Leadsom who has commented that a ‘no deal’ could not be prevented by parliament in the event that a Brexit deal is rejected.”
“If it can be assumed that yesterday’s events had led to a reduced chance of a hard Brexit, the outlook for GBP should have improved. However, GBP investors are likely to remain cautious.”
“Although it is far from clear that the Labour opposition would win the next election, the prospect of a far-left Corbyn led government is a significant negative factor for GBP.”
“Our forecast of EUR/GBP 0.86 in a 3 to 6 month view assumes that a Brexit deal is passed by parliament. This would pave the way for a soft Brexit, though uncertainty about the UK’s future relationship with the EU would still likely prevent the pound for holding onto more significant gains. On a hard Brexit we see risk of EUR/GBP surging towards parity. On ‘Bremain’ we would expect unleashed demand and expectations of a more hawkish BoE to push EUR/GBP towards 0.80 on a 3 to 6 month view.”
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