GBP remains fragile amidst Brexit concerns – Danske Bank

Jens Sorensen, Chief Analyst at Danske Bank, highlighted the weak outlook around the Sterling.

Key Quotes

“GBP has sold off significantly overnight, with EUR/GBP breaking above 0.88 while GBP/USD dipped temporarily below 1.20 earlier this morning”.

“The sell-off was triggered by a report in Sunday Times saying that the UK Prime Minister Theresa May’s speech on Brexit plans on Tuesday will indicate that the UK government is prepared to opt for a hard and clean Brexit”.

“As such, GBP is likely to remain under pressure in coming months as Brexit uncertainties will continue to weigh on the currency, and a new test of the ‘flash crash’ highs cannot be ruled out in the near term”.

“However May’s speech on Tuesday is not the only milestone for GBP in the short term as the Supreme Court’s ruling on whether it is the government or the parliament that can trigger the Article 50 is expected later this month. If the government wins its appeal at the Supreme Court, the market is likely to price in a higher probability of a hard Brexit and thus drive further GBP weakness. If it does not, the government will have to negotiate with the parties in parliament in order to secure a vote in favour of triggering Article 50, thus making a hard Brexit less likely. Given the past weeks’ sell-off in GBP, the latter could lead to a short covering rally in GBP”.