Richard Falkenhäll, senior FX strategist at SEB, the leading Nordic corporate bank, expects that EUR/GBP will move to 0.835 if the UK Parliament approves the Brexit agreement tomorrow (Saturday, 19 October), and shares his views on the impact that other possible scenarios will have on the pound:
“This weekend’s vote on the withdrawal deal in the House of Commons will undoubtedly generate a reaction in the GBP. The knee-jerk reaction would be to bet on GBP weakness in case the agreement is rejected by the UK Parliament, while we probably will see a stronger GBP if the deal is accepted. Then uncertainty would finally go away as the UK will then depart from the EU on 31 October. But is it really that simple?
“The behaviour of the GBP related to this weekend’s events in Parliament should be related to the final outcome of Brexit and not only to what happens this weekend. We expect that the GBP will react very negatively on a no-deal departure from the EU and would trade around parity against the EUR in such a scenario. In contrast, a scenario where the UK would revoke article 50 and remain in the EU would probably boost the GBP and in this case the EUR/GBP could trade towards 0.79. However, would Parliament approve the agreement tomorrow (19 October), it is also likely to boost the GBP slightly and take the EUR/GBP towards 0.8350-level.
“If Parliament rejects the deal or attaches a confirmatory referendum to it, the UK government will be forced to ask the EU for an extension, which ought to be positive for the GBP. Then the EUR/GBP should theoretically move to around 0.84-0.85 when markets begin to focus on the different options.”
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