Search ForexCrunch

“For GBP any outcome from the parliamentary vote that limits the prospect of a hard Brexit would be supportive,” argues Rabobank Senior FX Strategist Jane Foley.

Key quotes

“If the vote goes against May, there are a number of different scenarios about the course of events that would then be triggered. There is plenty of speculation that May would call a second parliamentary vote if she failed to secure a majority at the first. It could be that she may win approval the second time around with the support of a few minor amendments, helped by  the threat that a hard Brexit would bring a GBP crash and a UK economic downswing.”

“On this scenario, GBP would win back ground after an initial plunge. That said, we would warn that even on a soft Brexit GBP upside is likely to be hindered by political uncertainty. During the transition phase politicians will be thrashing out the details of the UK’s future relationship and the path may not always be smooth.”

“If the Tory party is subsequently led by a ‘leave’ supporter, there is unlikely to be much appetite for a second referendum. Instead a hard Brexit may be favoured, though in these circumstances the PM could attempt to negotiate specific areas such as medicines, aviation, security, food and rights of EU citizens to take to edge off the economic impact of a hard Brexit. GBP would be vulnerable in these circumstances. We would expect to see EUR/GBP trading close to parity on a hard Brexit with cable lurched towards 1.12.”

“The outlook for the pound is highly dependent on the outcome of the parliamentary vote on December 11. In the meantime investor will be watching the headlines to gauge the risks over whether May will manage to rustle up the required level of support. As it stands we consider the pound to be vulnerable to bad news and would favour buying EUR/GBP on dips. That said, given the importance of the vote on December 11, choppy range-trading could dominate until then.”