Political uncertainty associated with Brexit could knock GBP further

"Uncertainty appears to be one of the few certain elements of the Brexit process. In light of the sheer degree of political risk it is surprising that volatility in the pound has not been higher in recent weeks," note Rabobank analysts.

Key quotes

"Although we see a strong chance of an August rate hike from the BoE, against the backdrop of a firm USD we still see risk of cable retreating below the 1.30 level by the end of the year. We continue to expect a moderate softening of the pound vs. the EUR towards EUR/GBP0.89 into year-end, but we have raised our 12 mth forecast to 0.87 from 0.84."

"The MPC will be hoping that forthcoming UK economic data are sufficiently strong to allow it to pull the rate hike trigger this year and proceed along the path of policy normalisation. That said, the June guidance was not strong enough to reinvigorate comparisons of Governor Carney to an unreliable boyfriend if the Bank were to hold rates steady through the summer."

"While we are optimistic on the outlook for the greenback, we are less so on the EUR. Not only is the ECB dovish but the issue of immigration has brought far right populism and a threat to the status quo to a variety of EU countries. Within EMU, the new Italian government could yet be a disruptive influence when it publishes its budget proposal. Consequently, we expect GBP to slip relatively moderately vs. the EUR. We maintain a forecast of EUR/GBP0.89 on a 3 month view."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.