GBP: Outlook still clouded by politics – Rabobank
According to Jane Foley, senior FX strategist at Rabobank, by holding on to her job, PM May has removed one layer of political uncertainty but, the risks related to Brexit remain essentially unchanged.
“The risks for GBP are still substantial.”
“GBP’s gains this morning could reflect relief that a true Brexiteer is not now sitting in the driving seat.”
“For GBP the outlook is still binary. On a hard Brexit we would expect EUR/GBP to soar towards parity. On a soft Brexit, the pound will gain ground. Assuming this is the outcome, after a knee jerk reaction we would expect EUR/GBP to settle around 0.86 on a 3 month view.”
“Further sustained upside for the pound is likely to be limited by the fact that there will be plenty to negotiate during the transition phase with respect to the UK’s future relationship with the EU. The pound would stand to rally further on a Bremain scenario.”
“Given that opinion polls are currently suggesting that the ‘Remain’ camp would beat the ‘Leave’ camp by around 6 points in a second referendum, sterling would start to price this in on any sign that PM’s resolution with respect to a second vote was wavering.”