EUR/GBP to trade around 0.82 in 6M if there is a Brexit deal - Rabobank

According to analysts from Rabobank even if the Tory and Labour parties manage to find a compromise over the weekend which is sufficient to avoid a no-deal Brexit, the UK could be blighted by messy politics for a prolonged period. On the assumption that a Brexit deal can be found, they are forecasting that EUR/GBP can trade around 0.82 on a 6-month view. 

Key Quotes: 

“A relief rally in the pound that would follow news that a hard Brexit has been avoided could soon turn sour. Our current forecast is for EUR/GBP at 0.82 on a 6 month view but we will be watching political developments closely. Brexit will remain alive and kicking in the negotiations that will take place in any transition phase about the future relationship between the EU and the UK. Assuming that the Tory and Labour politicians find a compromise by including a customs union into the Withdrawal Agreement, the exact shape of this will still have to be thrashed out. The current customs unions that exist between the EU and other countries does not include areas such as services, data, intellectual property and public procurement. It is possible that the UK would no longer be covered by the EU’s existing free trade agreements. It is likely to take some time before the ambiguity clears and this could cloud the outlook for the pound going forward. In addition, GBP could be bogged down by a continuation of messy domestic politics.”

“While the coming days will be crucial in deciding whether a no-deal Brexit can be taken off the table, the UK political system has been heavily scarred by the process. This could be a dampener on investment flows and on the value of GBP for a prolonged period.”