Hard Brexit Moving Closer: Time-Line & Targets

We still see potential for further GBP weakness in the near term as the triggering of Article 50 moves closer.

We target EUR/GBP at 0.87 in 1-3M but stress that the risk is skewed on the upside relative to our forecasts and we expect the cross to continue to trade with large fluctuations.

Indeed, the upcoming presidential election in France is a potential source of EUR weakness but European political uncertainty should weigh only modestly on EUR/GBP ahead of the second Presidential election in France due in May.

We expect EUR/GBP to trade around 0.86 on a 6M-12M horizon, reflecting our expectation of the GBP stabilising somewhat in the slightly longer term on attractive valuation of GBP-denominated assets, given the undervaluation of the UK currency. Any turning point for the British currency would probably have to be driven by reduced uncertainty about the future agreement between the UK and the EU, which could entice foreign investors back to Britain. This could potentially take EUR/GBP down towards its fundamental equilibrium in coming years. Hence, longer term EUR/GBP risks are more balanced, in our view.




The House of Lords begins its two day debate on the "Brexit Bill" tomorrow (Monday)

The Article 50 Bill makes its way to the Upper House tomorrow

Watch the crossbenchers. The crossbench or independent peers are not a party - they have no agreed policies, still less a whip, and their main rule is that their members must carry no taint of party allegiance, which means no local membership, and no financial donations.

It follows that there is no crossbench line on Brexit, but the crossbenchers could well provide the swing vote on the key amendments to be debated at the bill's committee stage, a week after Second Reading.

So any indication that they are breaking in a particular direction will be significant. One key figure may be the super-lawyer, Lord Pannick, who led the legal team which forced the Government to introduce this Bill in the first place.

In debates on legal issues, in particular, he has been able to persuade the Lords' legion of retired judges and senior QCs to back his initiatives, and his name appears on an amendment from Labour's shadow Brexit spokesperson, Baroness Hayter, requiring prior Parliamentary approval for agreements with the European Union, which bears a considerable resemblance to the "Meaningful Vote" proposed by Labour in the Commons.

This morning on the BBC's Andrew Marr Show former Labour trade minister and now Lord Mandelson  has urged peers to "reinstate" the protections to EU citizens into the bill in the coming weeks.

"The government used its majority to bulldoze the legislation through the House of Commons," he said. "I hope it won't be so successful in the House of Lords,"

"At the end of the day the House of Commons, as the elected chamber, will prevail but I hope the House of Lords will not throw in the towel early."


Brexit is "irrevocable" once Article 50 is triggered

So says the UK government's Justice Secretary Elizabeth Truss 19 Feb

"People can take cases to court. My understanding is that it its irrevocable and when we press the button that will go forward."

Elsewhere Reuters report a Brussels source agreeing that optioin for the UK to change its mind has gone

"This bus has left. No one is happy about it but we have moved on and the last thing anyone wants now is to reopen the whole issue."

While the Irish minister for European issue Dara Murphy has told a forum:

"We have to accept the decision that Brexit will happen"


We have not fundamentally changed our long-run view of the impact of Brexit says BOE's Haldane

Brexit questions now

  • We have changed some of our shorter-term views
  • Upward revisions in updated forecast reflect the stimulus we put in places after the referendum
  • We've had unexpected consumer behaviour and a stronger world economy
  • We think higher prices will throttle some consumer spending as incomes get squeezed


  • Households tend to look through economic uncertainty unless it leads to tighter financial conditions


UK banks would have 12-18 months for Brexit transition says Hogg

Talking Brexit

  • UK banks will have 12-18 months to make transitional arrangements from the point at which certainty is reached on the terms of Brexit
  • UK shouldn't weaken regulations in Brexit

The message from a lot of financials is that many would be looking at, and indeed pushing for much longer, even around 5 years.


Divide and conquer will be the strategy for both sides in Brexit talks

Bloomberg obtained a German memo  regarding talking points on Brexit. Something that was likely prepared so talking points were ready ahead of the Article 50 trigger.

"We must not let ourselves be divided," it says and goes on to list some of the supposed high-minded principles of the EU.

Germany has been a tough talker ahead of Brexit but it exports twice as much to Britain as it imports and the UK is a critical market for German automobiles.

The problem for the EU is that the UK can try to extract concessions from individual countries or leverage threats. May's government is said to be probing soft spots in eastern Europe and Spain.

That will continue to be the strategy but it runs both ways. EU negotiators can leverage UK political divides like the current one with the House of Lords, can exploit the Scottish independence push and can threaten the City of London.

Ultimately, I think not much will change in terms of trade, because that's the best deal for everyone involved. The problem for the EU is optics. They need to be seen to 'punish' the UK somehow or other countries will follow Britain to the exit.

The risk is that it devolves into some kind of tit-for-tat fight but I just don't think the corporate overlords in Britain will put up with that.

On Wednesday March 29, Theresa May will finally trigger Article 50. That sets a two year negotiation period for the UK to leave the European Union. The foreign exchange market has built up an incredibly large short position against the pound in anticipation of Article 50. In this video, I talk about how to trade the pound when the headlines hit that Brexit has been triggered.




The EU draft Brexit guidelines have the full backing of the European Commission

So says both the EU and EC

  • Guidelines on Brexit have the full backing from the EC
  • EC is 100% behind the draft guidelines
  • EU takes the side of dialog and cooperation over Brexit

Comments coming from EC spokesman Schinas.


GBP: Towards A More 'Decent' Brexit But A Lasting GBP Recovery Still Far Away

Danske Bank FX Strategy Research expects UK Prime Minister Theresa May to stay in power after the snap general election on the 8th June and to receive the more broad-based backing she is seeking heading into the autumn negotiations on Brexit.

In particular, Danske's base case is that PM May will be able to negotiate a 'decent' Brexit that is 'neither too hard nor too soft'.

What does this mean for EUR/GBP?

"In our main scenario that May stays in power, we envisage that EUR/GBP will be in for a move higher again post a June election to around the 0.86. In this outcome, we look for EUR/GBP to be range-bound for an extended period, trading in the 0.84-0.88 interval over the coming year, and we do not expect the undervalued pound to fight back against the euro to any great extent on a 12M horizon," Danske argues.

As such, Danske adopted a flat forecast profile, seeing EUR/GBP trading around 0.86 level on a 1-12M horizon.
Source : https://www.efxnews.com/story/35842/gbp ... way-danske

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