GBP/USD: Reduced hard Brexit fears lend strength to Sterling – CIBC

Analysts at CIBC, forecast the GBP/USD at 1.33 by Q3 2019 and at 1.41 by Q1 2020.  

Key Quotes:  

“After two Article 50 extensions, the associated risks of the Brexit process have now been extended to a new end date of October 31st. Irrespective of the fact that Brexit continues to drag on, Sterling continues to be the leading G10 performer year-to-date versus both the USD and EUR. The currency has benefitted from an overall reduction in hard Brexit fears, the residue of which is demonstrated by net GBP shorts being pared to nine-month lows.”

“Although the threat of a hard Brexit may have diminished, bi-partisan negotiations between the government and the main opposition party have barely begun.”

“Should Brexit remain unresolved into H2, which appears increasingly probable, expect this to weigh on the probability of BoE action this year, in the process restraining GBP expectations relative to previous estimates. Both of the major political parties wish to negotiate a managed exit from the EU. Consequently, the twin-tail risk scenarios of a no-deal exit and future elections have been downplayed – albeit, the market risks underplay the latter. We continue to favour an eventually managed Brexit, encouraging a rebound in consumer expenditure and a resumption of business investment. The latter being necessary, as the current account shortfall sits at approximately 4% of GDP.”

“For now, we look for Sterling impetus being delayed by ongoing Brexit paralysis.”