EUR/GBP: Brexit starting positions? – Rabobank

Jane Foley, Senior FX Strategist at Rabobank, suggests that relative to the volatility experienced since last summer’s Brexit referendum, EUR/GBP has been remarkably stable thus far in February, moving mostly between a 0.8456 to 0.8645 range. 

Key Quotes

“In the coming months both the EUR and the GBP are at risk of feeling the brunt of a step up in political risk ahead of the French Presidential election and the official start of Brexit.  On the assumption that Le Pen does not win the second round of France’s election, we expect EUR/GBP to be trading closer to the 0.87 area on a 3 mth view with the pound weighed down by Brexit related concerns.”

“This week will see the UK government’s EU withdrawal bill debated in the House of Lords.  Given the strength of support for it in the House of Commons, the unelected Upper House is not expected to oppose the bill.  However, it is possible that amendments to its current form will be called for.  This means that the bill could find itself back in the House of Commons for reconsideration in the coming weeks.  If the bill is not amended it reportedly could be approved by the Lords as soon as March 7 and pass into law soon afterwards.  This would comfortably comply with PM May’s plan of triggering Article 50 of the Lisbon Treaty at the end of next month.”

“While the colourful array of Lords that are likely to speak on Brexit this week is likely to capture the headlines, plenty of work on Brexit is being carried out behind the scenes both in the UK and in the EU.  The European parliament is expect to state its initial negotiation position in the weeks after the UK PM triggers Article 50.  Various committees within the European Parliament have reportedly been asked for input to aid the EU’s chief Brexit negotiator Barnier.”

“We see risk that the clarification from the EU this spring on its negotiating lines will highlight the complexity of the issues facing by the UK over the next few years and we anticipate that the start of the Brexit procedure is likely to bring downside pressure to the pound.”

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