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Fritz Louw, Currency Analyst at MUFG Bank explained that only credible alternatives to a no-deal Brexit will support the Sterling.  

Key Quotes:

“The pound is down to its second-lowest level since the October 2016 flash crash. It has gone through the 1.2080 resistance level and went as low as 1.2016 this morning. This reflects the highest level of concern of a No Deal Brexit yet. There were some developments on that over the weekend which could suggest some upside risk for the pound. A report in the Times this morning, citing a “leaked strategy document”, indicate that MPs are drawing up plans to force PM Boris Johnson to give up his hardcore stance to leave the EU on October 31st come what may. This strategy document indicates that MPs will attempt to 1) Block PM Johnson’s attempts to hold an election before October 31 unless he agrees to a Brexit extension for the polling to take place and 2) Use a vote of confidence shortly before the Brexit date to take control of the parliamentary timetable and force the PM to request an Article 50 extension.”

“At this stage it looks like the Tory government could face a vote of confidence in the first week that parliament returns from its recess on the 3rd of September. Market focus shifted briefly to the macroeconomy when Friday delivered some more bad news for the pound in Q2’s GDP disappointment.”

“The BoE had hoped to keep rates on hold until after Brexit, in order to be best prepared for whatever outcome they faced, but if data continues to surprise on the downside the BoE will certainly face increased pressure to cut rates before Brexit, which will put more downside pressure on the pound.”