MUFG Research discusses GBP outlook and flags a scope for a retest of the post Brexit referendum low from late 2016 at 1.1841 for cable and high for EUR/GBP at 0.9307 over the summer.
"The price action clearly highlights that market participants are becoming increasingly fearful that the UK is now on course to leave the EU without a deal at the end of October. A retest of the post Brexit referendum low from late 2016 at 1.1841 for cable and high for EUR/GBP at 0.9307 appears increasingly likely over the summer. Pound volatility is also picking up sharply to reflect the heightened state of uncertainty over both the Brexit outcome and political stability in the UK. The developments are broadly in line with our expectations," MUFG notes.
"Recent price action supports our view that financial markets had not fully adjusted to price in the rising risk off a No Deal outcome. In the event of No Deal Brexit, cable could continue to fall towards the 1.1000-level and EUR/GBP towards parity," MUFG adds.
"The price action clearly highlights that market participants are becoming increasingly fearful that the UK is now on course to leave the EU without a deal at the end of October. A retest of the post Brexit referendum low from late 2016 at 1.1841 for cable and high for EUR/GBP at 0.9307 appears increasingly likely over the summer. Pound volatility is also picking up sharply to reflect the heightened state of uncertainty over both the Brexit outcome and political stability in the UK. The developments are broadly in line with our expectations," MUFG notes.
"Recent price action supports our view that financial markets had not fully adjusted to price in the rising risk off a No Deal outcome. In the event of No Deal Brexit, cable could continue to fall towards the 1.1000-level and EUR/GBP towards parity," MUFG adds.
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