According to analysts from Rabobank, the pound is likely to trade defensively in the coming months and see a chaotic no-deal Brexit sending EUR/GBP moving towards parity.
Key Quotes:
“New UK PM Johnson has promised an “energetic and front-footed” approach to achieving a new Brexit deal with the EU. The latter, however, has reinforced its position that the Withdrawal Agreement as negotiated with with former PM May is not up for re-negotiation. Just a few days into Johnson’s premiership, the inevitable deadlock appears to have been reached. Unless one side blinks, the result could be that the UK approaches a cliff-edge on Brexit on October 31.” The UK Parliament, however, is expected to attempt stopping the latter. A confidence vote in the PM or even a general election may not be too far away.”
“For GBP investors the curse of political uncertainty thus appears relentless. The currency has been under renewed pressure since May, when it became apparent that a Brexiteer would be entering Downing Street. Consequently, EUR/GBP has breached the important 0.90 area exposing the 2017 high around 0.93. The pound is likely to trade defensively in the coming months.
“Signs of an economic slowdown are likely to add to GBP woes in the coming months, although these are likely to play second fiddle to the political events. Our expectations of a modest improvement in the stance of the pound by year-end assumes that a decision on Brexit will (once again) be postponed beyond October. A chaotic no-deal Brexit would see EUR/GBP moving towards parity, however.”
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