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Brexit predictions: Expect dramatically different situational effects on GBP

Publication Date: 12 Mar 2019 - By ReachX Team By ReachX Team
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FX & Rates FX EU ex-UK UK

As the UK’s EU withdrawal date of 29 March 2019 draws near and there’s still no solution in sight, a City FX analyst has offered insights on the impact of various emerging scenarios will have on the pound sterling. 

Richard Falkenhäll, senior FX strategist at Nordic bank SEB, forecasts EUR/GBP at 0.82 if the British Parliament accepts the existing deal and near EUR/GBP parity in the case of a no-deal Brexit.

“Even if the UK government is defeated on its agreement with the EU in Parliament on 12 March 2019, we believe that the probability of a no-deal withdrawal on 29 March 2019 is quite small. However, Brexit is a political process which means that one cannot really exclude any outcome. From a currency perspective, various outcomes risk dramatically different effects on the pound,” said the SEB market expert. 

Plunging pound in case of hard Brexit

Falkenhäll said ever since then-Prime Minister David Cameron announced the referendum on EU membership late in 2015, the pound has traded with a risk premium connected to political uncertainty and the negative impact on the British economy. 

“On the one hand, if we assume that a hard Brexit would trigger about the same GBP trajectory in the short term and the following few months as after the 2016 referendum, this would represent a significant depreciation, with the EUR/GBP exchange rate approaching parity.”

Postponement quite possible

“On the other hand, EUR/GBP at 0.82 seems more reasonable assuming that the UK Parliament accepts the existing EU agreement, or postpones the withdrawal date.”

However, to make things even more complicated, another defeat in Parliament next week may force Prime Minister Theresa May to step down or the whole government to resign, triggering a snap election that potentially could create enormous political turbulence and uncertainty. 

“If this happened, the GBP will probably suffer even as the withdrawal period probably would be extended in this case,” Falkenhäll concluded. 

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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