Jane Foley, senior FX strategist at Rabobank, points out that after having dipped below levels last seen in 2017 yesterday GBP/USD recovered some ground as the boost stems from the increased likelihood that the UK Opposition supported by Tory rebels will be able to push legislation through parliament to stop a no deal Brexit on October 31, but while this reduces political risk, GBP remains a very vulnerable currency.
Key Quotes
“If, as now looks fairly likely, MPs do force the PM to request a delay to the start of Brexit, GBP is likely to win back further ground. That said, the PM Johnson has demanded that in these circumstances a general election should be called and this would open up another can of worms for GBP investors. It is not clear if the country will be going to the polls on October 15 as Johnson has suggested since this needs to be approved by a 2/3rds majority in the House of Commons.”
“If legislation is passed in the coming days that would delay the Brexit date by a few months, we expect the pound to rise towards EUR/GBP0.90, GBP/USD1.23 If a no deal Brexit is ruled out will would expect EUR/GBP to clamber back towards the 0.86 area in 3 months, and cable to rise to around 1.28.”
“If fresh legislation is not passed this week and the UK remains on course for a no deal Brexit we would expect EUR/GBP to rise firstly back towards the recent high in the 0.9325 area. How high EUR/GBP can go may then depend on whether the EU summit in mid-October brings any Brexit compromises. On a no deal Brexit on October 31, we expect EUR/GBP to rise towards parity and for cable to drop towards 1.10.”
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