After heavy losses, the pound is trying to resume growth. Can one hope for his restoration or the sale of the “Briton” is still a priority?
One of the reasons for the improvement of the pound’s position this week was the news from the United Kingdom, indicating the activation of opponents of Brexit as such and supporters of the “divorce” with the European Union, speaking, however, against the release of Albion from the Alliance without a deal.
Last Wednesday, Jeremy Corbyn, leader of the British Labor Party, proposed a vote of no confidence in Prime Minister Boris Johnson and the creation of an emergency interim government that ensures that the state does not leave the EU without an agreement and will conduct early general elections.
The Leader of the Liberal Democrats Jo Swinson expressed interest in discussing joint actions with the Labor Party, but said that she would prefer not to see J. Corbyn as the head of the interim government, who said he was ready to take on this “burden”, and Ken Clarke or Harriet Harman – one of the two members of the House of Commons who have the longest positions in parliament.
Representatives of the Scottish National Party, the Party of Wales and the Green Party of England and Wales, in turn, gave signals of readiness to support the plan of J. Corbyn.
We cannot say that the news is so positive, but even this alternative looks better than the UK’s exit from the EU until October 31 at any cost.
Good reports on the UK labor market, inflation, and retail sales also came out this week. Positive macroeconomic data remove from the agenda the need to reduce interest rates by the Bank of England at the September meeting. This is a positive signal for the pound, as investors expect the Fed to reduce the interest rate in September and October.
It is assumed that if London and Brussels will be able to make a deal, the pair GBP/USD is waiting for a rally to 1.2500 or higher, but the political risks still outweigh macrostatistics.
MUFJ experts recommend considering attempts to restore the British currency as an opportunity for its sale.
According to them, the probability of Brexit without a deal increased to 60%, which is a significantly more pessimistic assessment than the market average. A recent survey of economists conducted by Reuters showed that in August (compared to July), the chances of implementing a “hard” scenario increased by 5%, but are only 35%.
The bank sees the potential for further weakening of hopes for an orderly Brexit, and hence for the fall of the pound sterling.
According to the forecast of MUFJ, GBP/USD will reach 1.10 by the end of the year.
At the same time, experts note that even with the implementation of the negative scenario, the pound has chances to recover in 2020.
“We believe that the negative consequences of the “hard” Brexit will force London and Brussels to return to the negotiating table to work out solutions to reduce the damage that both sides will suffer. In addition, the British government is likely to adopt a package of fiscal stimulus measures to support the economy of the country”, the representatives of the MUFJ said.