GBP: Politically driven - ING

In view of analysts at ING, for GBP's politically-driven weakness to persist and extend all the way towards parity against the EUR, they argue that 'hard Brexit' risks would need to notch up another gear.

Key Quotes

“In reality, the only way this could occur over the next six months is if we get a nightmare Brexit scenario in October - that is a complete breakdown of UK-EU negotiations.”

“Instead, while we have previously acknowledged it is too early for GBP markets to price in any Brexit transitional deal hopes, we do think the growing consensus within Theresa May's cabinet over a transitional arrangement means that the tail risks of a cliff-edge Brexit are diminishing. The lack of clarity by the UK government on any preferred transition length - and rumours of only a 12 or 18-month arrangement being sought - may be seen as a near-term disappointment.”

“Progress on securing a transition deal - with both sides providing strong assurances - should help to ease any significant GBP downside bias. However, for this to serve as a catalyst for a rebound in the currency, we would need to see evidence that a reduction in economic uncertainty is in fact spurring a rebound in investment activity. This is what would give the Bank of England (BoE) greater confidence to begin normalising monetary policy - which would undoubtedly be a positive GBP development.”