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The pound has been under pressure amid Brexit political developments. What’s next?

Here is their view, courtesy of eFXdata:

Danske Research discusses its expectation for the ongoing Brexit developments.  Danske targets GBP/USD at 1.33 in 1-month and at 1.35 in 3 months.

The biggest obstacle in the Brexit negotiations remains the Irish border, as both the UK and EU want to avoid a hard border, which is difficult with the respective red lines. Moreover, the UK politicians are very divided on what the future customs relationship with the EU should look like and to what extent parliament should have a meaningful vote on the final deal. Hence, pressure on Prime Minister Theresa May and her government continues to increase in order to find a way to unite the opposing Brexit blocs within the conservative Party before they derail the government.

At this point,  we  think the probability of a hard Brexit (defined as the UK leaving the single market and probably the customs union) is 80%.  However, this is not the same as saying it is going to be a disorderly cliff-edge Brexit.

Our base case for Brexit remains what we call a ‘decent Brexit’  in which the final deal for the future relationship looks something like the EU-Canada CETA deal.

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