Analysts at Rabobank explained that while position adjustment can explain this month’s move higher in the pound, without a new piece of supportive UK political news we see little additional upside potential near-term.
Key Quotes:
"Although the market appears to be expecting the Supreme Court to rule against the government, this news should by now be priced-in. Additionally, despite Downing St’s promise of more details on Brexit plans there remains a huge fog over the position that the UK government intends to take with its EU counterparts.
Yesterday PM May choose to describe her Brexit plan as a red, white and blue one. Although this was an unabashed attempt to capture nationalistic sentiment, it also suggests that the government may still have very little additional details to offer.
Chancellor Hammond, however, did yesterday repeat that the government “wouldn’t rule out the possibility of some ongoing contribution in some form is we have an ongoing relationship”. Although this is line with the comments from Brexit Secretary Davies last week, it appears that this is only one of a number of potential options.
We see risk for GBP/USD dipping back to the 1.24 area on a 3 mth view in recognition of the political uncertainty that still clouds the UK. In the absence of further signs that the UK could retain access to the EU’s single market post Brexit, we would argue that a recovery to the 1.30 area still looks to be a long way away."
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