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Jane Foley, Senior FX Strategist at Rabobank, suggests that they see risk that cable will trade below the GBP/USD1.30 in the coming months and their end of year forecast is GBP/USD1.28.

Key Quotes

“Based on the hope that Brexit would bring some clarity on the political front, we have forecasting a better tone for the pound post-March 2019.   Recent events, however, suggest an increased chance of the UK remaining in a quasi-customs union arrangement with the EU until the UK can put in place a workable alternative.   This could mean that political uncertainty continues well beyond next March.”

“Our forecasts that GBP will recover some ground in a 9-12 month view may therefore prove to be optimistic.   That said, we see little reason to question our view that the pound can fall further in the coming months.”

“In view of the huge amount of political uncertainty in the UK currently, it has been surprising that volatility in the pound has not been greater in recent weeks.”

“It is likely that many participants have retreated to the sidelines due to the sheer magnitude of confusion stemming from events in Westminster.   If May loses today’s Commons vote on Brexit, it can be argued that a hard Brexit would be less likely.   However, it will difficult for GBP to celebrate such an outcome when at the same time May’s negotiating hand could be weakened as indeed would be her prospects of holding down her job long enough to see the Brexit process through.”

“While politics continues to cloud the outlook for GBP, the change in guidance offered by the BoE this spring can be associated will a sizeable leg lower for the pound.”

“While market economists have been more optimistic regarding a move in 2018, recent surveys suggests that they too are losing faith.   Not only did UK Q1 GDP growth disappoint with a lacklustre 0.1% q/q expansion but heightened political uncertainty could complicate the backdrop for rate setters.”

“We maintain the view that EUR/GBP will push towards the 0.89 area on a 3-6 mth view. Given our bullish USD forecasts, this equates to cable dropping below the 1.30 level in this horizon.”