MUFG Research discusses GBP outlook in light of the latest Brexit risks developments.
"The pound has continued to underperform overnight amidst more risk-averse trading conditions. It has resulted in EUR/GBP rising back towards the 0.9000-level and cable falling towards the 1.3000-level. Market participants have been unnerved by the negative Brexit headlines at the start of this week ahead of another round of talks over a trade deal. It has triggered a correction lower for the pound after it had been outperforming since the middle of July," MUFG notes.
"According to our valuation model estimate based on interest rates alone, cable appeared fairly valued towards the end of last week. In the past the pound has become more undervalued as Brexit risks increased. It leaves plenty of scope for the pound to weaken further should market participants price in more of Brexit risk premium to reflect the increasing risk of a more disruptive No Deal outcome," MUFG adds.