GBP: Veil of political uncertainty – Rabobank

According to Jane Foley, senior FX strategist at Rabobank, the UK’s Supreme Court ruling that PM Johnson’s advice to the Queen regarding the prorogation of parliament was unlawful has failed to lift the veil of political uncertainty that hangs over the pound.

Key Quotes

“Latest opinion polls put the Tories ahead on 33% of the vote. A government majority could be formed with the Brexit party (on 13% of the vote) and potentially a small party such as the DUP. Alternatively a broad coalition led by the labour party and supported by the Lib Dems and Greens could be result from an election. On the first outcome the risk of a hard Brexit on January 31 would spike and on the second outcome the risk of a new Brexit deal or even an ‘Remain’ outcome would increase. For GBP the risks remain binary and as yet little altered by today’s Supreme Court ruling.”

“Our central view is that the Brexit start date will be delayed beyond October 31 in line with the legislation that was pushed through parliament earlier this month. On this scenario we expect EUR/GBP to be trading in the 0.90 area on a 3 month view.”

“If a Brexit deal were struck between the UK and the EU in the coming weeks, we would expect EUR/GBP to recover to the 0.85 area and for GBP/USD to push towards 1.30. On a no deal Brexit on January 31 we see risk of EUR/GBP spiking towards parity.”