Having spiked ahead of the weekend, the British Pound stumbled into Monday’s session, failing to extend late-week gains and slipping against a basket of peers as Brexit gridlock remained the factor of the day.
Volatility for the Sterling and GBP denominated markets picked up last week as the EU council met to discuss Brexit and subsequently granted a short delay, until mid-April.
Volatility is expected to remain heightened this week as UK lawmakers continue Brexit-wrangling.
While unconfirmed, a third meaningful vote (MV3) on PM May’s Eu withdrawal agreement is expected, although the timing thereof remains uncertain with some analysts predicting the PM could wait until after a series of indicative votes, expected Wednesday, in order to garner support from anti-EU factions should indicative votes lean towards softer (or no) Brexit options.
Unsurprisingly, British Â£ forecasts from international payment providers and banks remain Brexit-centric with this expected to be the key driver of price action.
Commenting on the anticipated series of indicative votes, currency strategist, Kit Juckes, of Societe Generale views the votes as a ploy to convince hard-line pro-Brexit Conservatives to back the PM’s deal, lest face the possibility of softer options.
Juckes wrote “May probably hopes this (outcome of indicative votes) will convince Brexiteers that her agreement is preferable to a long delay to Brexit but a â€˜no dealâ€™ exit remains possible,â€ adding “Sterling is likely to remain choppy and potentially untradeable.â€
Danske Bank analyst, Aila Mihr’s positive outlook for the GBP is contingent on the EU agreeing to grant a longer Brexit extension raising the chances of a no-Brexit Brexit, following what Mihr expects to be a third rejection of the PM’s EU withdrawal agreement by the House of Commons.
Mihr wrote “The Brexit saga continues: last week the EU gave the UK one more chance to pass Mayâ€™s deal (vote likely Tuesday or Wednesday) but a long extension of the Brexit deadline seems more likely than the deal passing,” adding “A long extension should be mildly positive for GBP, as the chance of a second referendum would increase.”
While the technical setup for the Pound-to-Dollar and Euro-to-Pound exchange rates remain reflective of further upside potential for the Sterling, cross-asset strategist, Robin Wilkin, of Lloyds Commercial banking expects both the GBPUSD and EUR/GBP to remain range-bound in the immediate near-term until Brexit clarity, one way or another, emerges.
Commenting on the Cable, Wilkin wrote “Intra-day volatility remains high, with prices moving aggressively, at times, within a range between 1.3000-1.2950 support and 1.3300-1.3400 resistance.” Nevertheless, the bank’s base forecasts calls for the Cable to reach $1.35 over the coming months.
On the EUR/GBP, Wilkin wrote “Prices are volatile between 0.8520-0.8470 support and 0.8700-0.8725 resistance.
While under that resistance, the underlying technical outlook remains bearish, with a break of 0.8475 opening a move towards the more significant medium-term 0.8350-0.8250 lows.” Wilkin added “Long term, a decline through key 0.8350-0.8250 range lows is needed to indicate a major shift in sentiment, suggesting a move to 0.8000/0.7500.”
For ING’s chief EMEA FX and interest rate strategist, Petr Krpata, near-term price action for the GBP is expected to depend on how the anticipated series of indicative votes (expected Wednesday) unfolds with a bias towards softer options expected to support the GBP.
Krpata wrote “Following speculation about a cabinet coup against Prime Minister Theresa May over the weekend, the focus turns to todayâ€™s cabinet meeting and the likely series of indicative votes (on parliamentâ€™s preferred path for Brexit) later this week,” before adding, “We expect GBP gains to pause after the meaningful rally on Friday, with the EUR/GBP 0.85 level to be breached if parliament leans to towards a softer Brexit option.”
With a similarly upbeat outlook for the GBP, contingent on the outcome of this week’s series of indicative votes, Rodrio Catril, senior FX strategist at the National Australia Bank (NAB) expects the GBP to extend Friday’s gains should UK lawmakers seize control of Brexit proceedings.
Catril wrote “With a large majority of British MPs against a no-deal outcome, and parliament likely to take steps to take control of the process this week, there is scope for the GBP to build on its gains from Friday,â€ adding, “But with Theresa May coming under heavy political pressure to resign and the tail risk of new elections, itâ€™s still likely to be a bumpy ride.â€