According to analysts from Rabobank, without doubt, politics remains the main dominant driver of the Pound. They warn that in a “no deal” scenario, GBP/USD could drop to 1.10.
Key Quotes:
“As the clock continues to tick down, the market has become even less optimisic that the government can pull a rabbit out of the hat and find a new compromise with the EU on the issue of the border across the island of Ireland. The risk of a no deal Brexit is therefore still alive, if not on October 31, then on January 31. Consequently, GBP remains a vulnerable currency and is susceptible to bad news both on the political and the economic fronts.”
“Without doubt politics remains the main the dominant driver of the pound. That said, the market is also keeping one eye on the Bank of England. GBP has suffered a fresh hit on the news that one of the MPC’s former hawks, Saunders, appears to have changed his feathers. The BoE’s official guidance maintains a hawkish element that is counter to the tone of most other major central banks.”
“Our central view is that the Brexit start date will be delayed beyond October 31 in line with the legislation that was pushed through parliament earlier this month. On this scenario we expect EUR/GBP to be trading in the 0.90 area on a 3 month view. If a Brexit deal were struck between the UK and the EU, we would expect EUR/GBP to recover to the 0.85 area and for GBP/USD to push towards 1.30. On a no deal Brexit we see risk of EUR/GBP surging towards parity and for cable to drop back to 1.10.”
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