According to analysts from Rabobank, it is possible that the Pound is biased towards playing down the odds that the United Kingdom could crash out of the European Union without a deal, considering the recent performance.
Key Quotes:
“GBP can again boast that it is the best performing G10 currency on a 5 day view. Since its February 14 low, cable has gained a little over 3.5% as the market has repriced expectations about the chances of a hard Brexit. In order to avoid another embarrassing defeat in parliament PM May has promised MPs a vote by March 14 allowing them to request a delay to the Brexit start date if she fails to garner sufficient support for her plan on a vote on March 12. While this sharply narrows the chances of a hard Brexit by March 29, a cliff edge exit could still happen at the end of a short extension to the Brexit start date. This threat should cap upside potential for the pound in the coming weeks.”
“The pound has already drifted off this week’s best levels. Next week, the market will be focussing on any signs that May could achieve a majority to pass her Withdrawal bill on March 12. It remains our central view that an orderly Brexit will be achieved. During the ensuing transition phase that would follow a soft Brexit, negotiations would then turn towards the future trade relationship between the UK and the EU. This implies that any initial GBP rally would likely be dampened by continued political wrangling. On this scenario we would expect EUR/GBP to settle in the 0.85 to 0.86 area in the coming months. On a 12 mth view we see EUR/GBP around 0.84 and cable pushing towards 1.37. On a hard Brexit, we would expect EUR/GBP to spike up towards parity which cable plunging towards the 1.13 area.”
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