Upside for the pound is certainly attractive but remains locked by Brexit
SocGen weighed in with their view here yesterday that any good news in the days and weeks ahead will be a positive platform for the pound to move higher. They also argued that any move up in cable towards 1.30 to 1.35 will also get it to 1.40 to 1.45 eventually.
And now JP Morgan Asset Management is also weighing in with their thoughts on the matter, saying that the pound can rise 4% at least if the UK parliament approves May’s Brexit deal in the meaningful vote next week. That will take cable up to 1.32 levels from the current 1.27 levels. They also view that the BOE will raise rates by 50 bps by the end of this year if a no-deal Brexit outcome is avoided.
In my view, I don’t see the above forecasts as being wrong as there is plenty of pessimism being baked into the quid right now with regards to Brexit. The best case scenario for the pound in the near-term would be to see parliament side with Theresa May next week on the meaningful vote. I can imagine a quick spike in cable to 1.3000 at the very least on the initial move before traders start looking for an extension towards the September high near 1.3300 next in the sessions to come.
Essentially, a decision to go with May’s Brexit deal would mean a smoother process and that will take away plenty of uncertainty on things like a possible second referendum, a no-deal outcome, and would even allow the Bank of England to get back on track with regards to tightening monetary policy.
That will put an end to the sell-the-rallies play that has worked so well over the past year. Today is another example of that with cable now falling to 1.2720 now after touching highs of 1.2777 earlier.
However, the reality of the situation is that it’s not all rainbows and unicorns and realistically at this point, we’re headed for more uncertainty as we approach next week’s meaningful vote; and likely to be slapped with further uncertainty in the aftermath as well.
But if things do start to turn for the better with regards to Brexit, how much upside do you think the pound will see? 1.30? 1.40? Maybe even 1.50?