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Over the past week, the Pound rose significantly on the back of the improved prospects of a Brexit deal. Analysts at Rabobank would expect GBP/USD to hit the 1.30 level on the back of a deal this week and EUR/GBP likely to drop below 0.85.  

Key Quotes:  

“There is the possibility that the government could start legal proceedings to avoid asking for an extension with the intention of taking the UK out of the EU on October 31 without a deal. In this scenario GBP can be expected to plummet with EUR/GBP likely to leap towards parity and cable set to drop towards 1.10. Alternatively, the PM could argue that he has been forced to request a short extension and pressure parliament to call for an early election in which his deal would be placed centre stage.”

“The Labour party is not performing well on the polls. Its official stance on Brexit is that it will not back a deal negotiated by PM Johnson (though several labour MPs from ‘Leave’ constituencies would likely rebel) and that it would like to negotiate its own Brexit deal. Polls also show that the electorate’s patience with Brexit has run thin. If the Conservative Party’s manifesto contains a deal and the Labour party’s does not, Johnson may be able to restore his position in an election. In this scenario, GBP is likely to rally.”

“Our favoured view is that early elections and Brexit delay are likely before a deal is eventually passed. For this reason our central view is that EUR/GBP is likely to be trading in the 0.90 area on a 1 to 3 month view, before GBP recovers ground into the new year.”