GBP: Guided by the UK politics – Danske Bank

Jens Nærvig Pedersen, senior analyst at Danske Bank, notes that the GBP gained yesterday on the news that the leader of the UK Labour Party, Jeremy Corbyn, said that he is ready to support a second Brexit referendum.

Key Quotes

“We have a couple of interesting days ahead of us today and tomorrow in terms of Brexit. Today, Theresa May will chair a Cabinet discussion on extending Article 50 and later today she will update parliament on the Cabinet’s decision. Tomorrow, the vote in the House of Commons is still on and the big question here is whether the so-called Cooper amendment – which would force May to ask for an extension of Article 50 in case she does not get a deal or wins backing for one – will pass or not.”

“EUR/GBP currently trades in the low end of the 0.86-0.89 range at 0.865 and a further decline in the ‘no deal’ Brexit risk could lead to further GBP appreciation and possibly a test of 0.86 short term. However, we would need to see a more ground breaking development either in the form of an agreement of a long extension of Article 50 or the call for a second referendum to justify a sustained break below 0.86 at this stage.”

“Especially the latter would be very positive for GBP as a ‘no Brexit’ scenario (likely after a second referendum) could send EUR/GBP sub 0.80.”