GBP under pressure from Brexit - HSBC

"The recent resignation of UK Brexit Secretary Dominic Raab has seen GBP reverse sharply lower, after some prior positivity regarding the UK-EU Withdrawal Agreement," note HSBC analysts.

Key quotes

"Speculation is mounting about any further resignations from the cabinet and even a potential leadership challenge to Prime Minister May. We think GBP is likely to remain very volatile, with asymmetric downside risks to GBP due to two factors. (1) There is a growing likelihood the Withdrawal Agreement might not make it through parliament; and (2) time is running out on Brexit negotiations. We think any substantive delay could push the UK closer to a 'no deal' outcome which might see GBP-USD move lower."

"If Mrs May were to survive, GBP may bounce but most likely from lower levels than we are at now. This outcome would not offer greater clarity on whether her government’s Brexit deal would command a majority in parliament. GBP would likely take little solace as such a leadership vote would underline the degree of hostility within her own party to the deal struck with the EU. If 48 MPs are willing to initiate a vote of no-confidence, it would reinforce expectations that those MPs, and possibly others, would vote against the current Withdrawal Agreement in Parliament, nudging the UK closer to a 'no deal' Brexit."

"Were the Prime Minister to lose, GBP could be challenged on a number of fronts. The markets might fear that her replacement would take a tougher stance in any reopened negotiations with the EU, driving the economy towards a harder Brexit or a 'no deal' Brexit. However, the more critical threat to GBP is the inexorable march of time. The UK government, whoever leads it, does not have time on its side to negotiate a Brexit agreement. A year ago, nothing happening would have been neutral for GBP. Now, with deadlines looming, even inaction could be GBP negative as it would likely bring a 'no deal' exit ever closer."