ING Research discusses GBP outlook and sees a resemblance between the current price action and earlier this year when GBP rallies around Article-50 extension before collapsing thereafter.
"GBP has benefited from the mix of: (a) the UK Parliament legislating against no deal Brexit by the 31 Oct deadline; (b) the stretched short positioning. Still with early elections looming (it now seems just a question of timing – ie, before or after the October deadline), we expect GBP strength to be short-lived and the pound to soon re-start a weakening trend given the election uncertainty and non-negligible risk of a no-deal Brexit should the Conservative party under PM Johnson win a Parliamentary majority," ING notes.
"Indeed, recall the GBP price action earlier in the year, when GBP strengthened first on the hopes of the Article 50 extension (as is happening now) but eventually depreciated meaningfully as UK politics became even more fragmented and the risk of a no-deal Brexit rose. We look for a similar roadmap this time around," ING adds.