Downside potential for pound is big

What scenario is the most likely?

The outcome of Brexit continues to be of crucial importance for the rate development of the pound. The forces at work aimed at preventing a no-deal Brexit are strong. It is clear that a no-deal Brexit will create a great deal of damage to the British economy. In this scenario, a weaker pound would be likely. Nevertheless, the pound does not necessarily have to decline by far more than 5%, as the United Kingdom is very likely to implement large-scale fiscal stimulus in this case. At this point, postponement of Brexit – immediately followed by new elections – is a more likely scenario. This would be positive for the rate of the pound in that the Conservatives are likely to win these elections (a victory of Labour with Jeremy Corbyn as the new Prime Minister is a terrifying prospect for the financial markets). Still, the uncertain outcome of Brexit has a negative effect on the pound. As result the UK currency will only manifest a sharp increase in the event of the absence of Brexit or in the event of a soft Brexit. At this point, however, these scenarios seem very unlikely.

Short term

EUR/GBP is therefore likely to stay in the range of 0,86 and 0,90. 

 

 

GBP/USD is likely to first appreciate to 1,32 – 1,35 after which GBP/USD enters a downtrend.

And after that?

In the full publication we give you the most likely scenarios for the medium term (3 weeks - 1 year). Leave your e-mail address and you will get 30 days free access without obligation to the ICC Research Platform, including our most recent EUR/GBP publication.

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