An influx of Brexit headlines is rocking and shaking the pound. What’s next?
Here is their view, courtesy of eFXdata:
MUFG Research discusses binary Brexit scenarios for GBP/USD over the coming months into early 2019.
Smooth & Orderly Brexit:
“(1) The EU & UK finalize and legislate for the Withdrawal Agreement in a timely manner before the end of the Article 50 period on the 29th March 2019.
(2) The UK remains in the single market until the end of 2020 as part of the transition agreement. Then in a customs union until at least 2021 while a new future trading relationship is negotiated.
(3) The UK government’s plans for Brexit are softened. Parliament supports the formation of some form of customs arrangement.
In this scenario, we would expect the pound to potentially strengthen by over 5-10%. GBP/USD would likely rise to range of 1.3600-1.4400,” MUFG argues.
More disorderly Brexit (No Deal)
“(1): The worst outcome for the pound would be if the Brexit talks completely broke down and the Withdrawal talks were unable to be finalized before the 29th March 2019. Parliaments are unable to pass required legislation for any deal.
(2) The UK would revert to trading with the EU under WTO terms without a transitional phase. It would pose the biggest negative shock to current trading relations and the UK economy.
In this scenario, we would expect the pound to potentially weaken by a further 10%-15%. GBP/USD would likely fall to 1.1400 – 1.2200,” MUFG adds.
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