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Brexit demonstrators

Image © sterling pound live, Al Jazeera

– Morgan Stanley pointing movement below 1.10

– Investors demand a premium over the pound sterling in the current political uncertainty.

– Scotiabank says another Brexit delay on the cards.

The pound is expected to remain under pressure in the foreseeable future, and analysts at Wall Street Morgan Stanley say they will see further declines against the Euro as a new election or that a new Brexit referendum will be required to break the deadlock in Great Brittany. politics.

The pound-to-euro exchange rate is trading at 1.1307 at the start of the new week, but in the midst of a lasting political uncertainty, the pair fell below the 1.13 level before the weekend, which guarantees that the GBP / EUR change registered a fall of 4.0% in May. .

This represents the biggest monthly fall against the euro in two years and confirms a negative trend.

"We expect sterling to maintain a weak tone, as recent political events suggest that there is likely to be another delay in Brexit, if only because a new Prime Minister and the parliamentary recess will make it almost impossible to achieve exit "without agreement" before the end of October, which will reduce the economic outlook, prolong the uncertainty and delay any possibility of Bank of England tightening monetary policy, "says Shaun Osborne, a currency strategist with Scotiabank.

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Lasting political uncertainty means that foreign investors continue to demand a premium in Sterling. Underscoring this uncertainty was an extraordinary survey last Friday that showed the perennial laggards the Lib Dems surpassing a YouGov Survey of Westminster voting intentions.

In what has become a four-horse race at the height of British politics, the Liberal Democrats, the Brexit Party, the Labor Party and the Conservative Party are voting a few points below the 20% mark: Liberal Democrats obtained 24%, the Brexit party 22%, conservatives 19% and work 19%.

YouGov "width =" 600

The data suggest that an election that will be held soon will install another unstable minority government.

Surveys have become increasingly important as we believe that general elections are likely to be called in the coming months. A "no agreement" advocate is likely to win the conservative leadership race, which in turn will provoke a vote of no confidence in the government, which is likely to be lost, as "permanent" conservatives will likely vote against their own government instead of watching him chase a & # 39; not deal & # 39;

The new Prime Minister will have no choice but to dissolve parliament and call another ballot. "We believe that the markets may be unprepared for the possibility of general elections being called before the Brexit October deadline," said Shahab Jalinoos, strategist for the GBP. of currency with Credit Suisse.

And if no party suggests that they would gain a majority, there is simply little political certainty that the markets will cling, and therefore it should come as no surprise that Sterling is in decline.

"The agreement on the way forward will probably require new elections or a new Brexit referendum," says Hans Redeker, a foreign exchange strategist with Morgan Stanley. "Our economists believe that the risks of both a hard Brexit and Remain have increased, and the results of the European elections showed a divided electorate between these two results."

Redeker says continued uncertainty may continue to weigh on the pound sterling, but the euro could be supported by a repatriation of investors' capital to the euro zone in the current episode of market anxiety induced by the trade war.

As the strategists at Morgan Stanley are advocating that traders sell the pound against the euro, pointing to a 1.0989 movement.