- Posted by currencies in Rate Alerts
- August 7, 2019
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The pound this morning has remained stuck near its weakest since 2017 and analysts are predicting renewed volatility.
Risks of a no-confidence vote in the new Conservative government as soon as it comes back from the summer recess, or an early election are two of the many scenario’s investors envision happening as the deadline to leave the European Union approaches.
We’re beginning to see the uncertainty over Brexit ﬁlter its way through to generally weaker UK consumer and business activity. The UK economy expanded at a decent pace of 0.5% quarter-on-quarter in the ﬁrst three months of the year, but the latest indicators of economic activity ensure that growth is all but certain to have slowed in the second quarter.
We think that Sterling will continue to be driven almost entirely by Brexit developments throughout the remainder of 2019.
While we acknowledge that the risk of a ‘no deal’ has undoubtedly increased in recent weeks, we remain bullish on the Pound.
Our base case scenario remains for an agreement to be forced through the House of Commons at some point before the 31st October exit date. It is clear that there remains little appetite for a ‘no deal’ among the majority of the House of Commons and indeed the EU. We are, however, increasingly of the view that this may require the calling of a general election in order to break the impasse.
We think that the path of least resistance for Sterling in the coming weeks is lower. Each day that passes without positive Brexit news edges the UK closer to an acrimonious ‘no deal’ exit from the European Union, widely regarded as the worst-case scenario for both the UK economy and the Pound. Under such a scenario we would expect to see a sell-off in Sterling of anywhere between 5-10% from current levels versus the US Dollar.
By contrast, any scenario that avoids a ‘no deal’ would, in our view, send the Pound sharply higher and ensure that Sterling ends the year as one of the best performing currencies in the G10.