GBP/USD: Outcome of UK’s parliamentary vote on Saturday to dictate the drivers of the coming sessions – Rabobank

According to analysts from Rabobank the chances of UK Prime Ministre Johnson’s Brexit deal passing through parliament are on a knife-edge and the near-term outlook for GBP is binary.

Key Quotes:  

“The outcome of the UK’s parliamentary session on October 19 will dictate the drivers of the pound for the coming sessions. If MPs pass PM Johnson’s Brexit deal, GBP’s relief rally is likely to be given another dose of vigour. If they do not, focus is likely to switch to the prospects of an early general election. In these circumstances it is possible that the perceived chances of another Brexit referendum or a no deal Brexit could also increase once more. A relief rally is likely to see GBP/USD sailing through the 1.30 level, another round of political volatility could see cable back at last week’s lows around 1.22.”

“If Johnson’s deal is rejected by parliament the pound can be expected to fall. Assuming that the government does not attempt to manipulate that outcome into a green light for a no deal Brexit, downside potential is likely to be limited, with the October lows in the GBP/USD 1.22 area likely to provide solid support.”

“Labour’s Corbyn has so far twice refused to comply with Johnson’s request for an early election given the perceived risk that a victory for the PM could increase the chances of a no deal Brexit. Now that the Benn Act is in place, it is a reasonable assumption that opposition MPs would allow an election to take place. At that point GBP is likely to switch its attention to the opinion polls.”

“If political uncertainty does decline over the medium-term GBP will revert to paying greater attention to economic and interest rate events. In the near term, the risks to the pound are binary dependent on whether or not Johnson’s deal passes through parliament.”