Petr Krpata, chief EMEA FX and IR strategist at ING, suggests that GBP continues its descent as concerns about the Brexit outlook intensify and in the month ahead, they expect headline news to continue to negatively impact sterling.
“First, the likely confirmation of Boris Johnson as the next Conservative leader and thus prime minister next Tuesday won’t be helpful for GBP. The Conservative party conference in late September will also add pressure to GBP, with peak pressure building in October ahead of the 31 October Article 50 extension deadline.”
“While the outlook for GBP does not look great, sterling has already moved considerably. Below we look at the technicals such as risk premium, positioning and the option market and conclude that despite the bad news already being reflected in sterling, there is still scope for further GBP decline. This is consistent with our forecast of EUR/GBP 0.92 and GBP/USD 1.22 this summer. Risks to our GBP forecasts remain on the downside, stemming from both risks of a hard Brexit or early elections.”
“If elections are called early, we see EUR/GBP approaching the 0.95 level.”