According to analysts from Rabobank, politics rather than economics is the main driver of the pound. They point out that Brexit negotiation are scheduled to resume this month, but September’s Labour Party conference could provide a fresh driver for the pound.
“Assuming there is a trade deal done in the coming months between the EU and the UK, this could still come in many shape and forms. The value of GBP by contrast is struck on a binary path, though the market’s approval or disapproval of political outcomes can clearly still be reflected in how far the pound moves.”
“We anticipate that a hard Brexit has the potential to take EUR/GBP to parity and potentially beyond. By the same token retained access to the customs union and single market by the UK post Brexit would wipe out a huge degree of uncertainty for businesses. This could lead to a sharp rally in the value of GBP vs. EUR potentially back as far as 0.80-0.75. Given the risk that many loose ends could be kicked into the Brexit transition phase, our central view is that EUR/GBP may only drop back to the 0.88-0.87 area after the UK leaves the EU in March, but that there is scope for further strengthening during the course of next year.”
“Next week Brexit talks are officially scheduled to resume in Brussels. This could be a true test of whether the EU really are minded to compromise.”
“The Labour party conference next month may thus has a significant bearing on the outlook for the pound, though as it stands leader Corbyn does not support a second vote.”
“In the meantime, we would expect the pound to be on the back foot heading in the resumption of Brexit talks. We see EUR/GBP at 0.89 on a 3 mth view and cable at 1.28.”
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