MUFG Research discusses GBP outlook and maintains a bearish bias noticing that its relief rally proves short-lived as “No Deal” fears remain centre stage.
"The pound is back on the defensive after a short-lived relief rally following the appointment of Boris Johnson as the new Prime Minister. It has lifted EUR/GBP back towards the 0.9000-level and cable has fallen to a new year to date low of 1.2361 overnight as it moves back towards the post Brexit referendum lows set between the 2H 2016 and 1H 2017 at just below the 1.2000-level.
As we highlighted last week, we did not see fundamental justification for the pound’s initial relief rally to be sustained while the risk of a “No Deal” Brexit continues to rise under PM Johnson’s new government. The promotion of hard Brexiteers to key cabinet positions is consistent with a government that will press hard to deliver Brexit at the end of October with or without a deal," MUFG notes.
"In these circumstances, we continue to see scope for the pound to weaken further and for pound volatility to increase heading into the crunch autumn period," MUFG adds.