"Our base case that 'no deal' will be avoided and that there will be some form of resolution by year-end (either a renegotiated deal or a second referendum – both preceded by an Article 50 extension) makes us constructive on GBP in the medium-term," argue ING analysts.
"This should lead to a higher GBP by end-2019, with the scale of the GBP upside depending on the form of the resolution. Coupled with our constructive EUR/USD view for 2H19, we look for GBP/USD at 1.40."
"In terms of medium-term valuation, and after suffering heavily since early 2016 (the point when the market started pricing in the associated risks stemming from the Brexit referendum), sterling is currently the cheapest G10 currency by a considerable margin and is undervalued by staggering 20% against EUR. The scenario of no Brexit (if voted through in the second referendum) would in our view lead to a compression of around half of the current mis-valuation. This would bring EUR/GBP towards the 0.80 level, particularly in light of the still very short GBP speculative positioning."
"Still, we don’t think it is likely that even in the best case scenario of the UK ultimately staying in the EU sterling would fully close the current valuation gap. This is because the damage to the economy and fundamentals has been already done over the past three years (as evidenced by the fact that the UK economy has been growing at half the speed of the US economy last year) and that all suggests less upside potential for sterling compared to what the fair value suggests."
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.