ANZ Research discusses GBP outlook and adopts a bearish bias, expecting a move towards 1.20 in the near-term.
"Prime Minister, Boris Johnson, has pledged the UK will leave the EU on 31 October, deal or no-deal. A deal is his preference. He seeks to re-negotiate or get rid of the Irish backstop. Brussels says it will not renegotiate the Withdrawal Agreement, which the UK must pass before it will begin free trade talks.
Parliament is in recess until 3 September and as uncertainty persists, GBP is vulnerable to further losses vs USD. Despite uncertainty, UK domestic demand is holding up and the government is set to stimulate fiscal policy in the autumn. Income tax cuts and increased spending on infrastructure, health, education and law and order are expected," ANZ notes.
"Preparation for a no deal Brexit is also intensifying. GBP remains vulnerable to Brexit uncertainty and the market will continue to build in associated risk premia. Uncertainty rules out interest rate hikes, leaving the GBP as the main vehicle through which investors and corporates can express and hedge Brexit risks. We expect a near term move towards USD1.20," ANZ adds.