MUFG Research discusses GBP outlook in light of Boris’ Brexit course as the new PM.
"What is clear is that after a period of probable relative calm for initial negotiations (from now through August) we are likely to arrive at a period of constitutional crisis as the government battles with parliament and possibly the judiciary over a no-deal Brexit. In that mix will be the constant threat of a general election.
The pound sees much of this on the horizon and a look at IMM speculative positioning data reveals a notable upturn in speculative selling of the pound. Asset Managers and Leveraged accounts combined has increased GBP shorts to a level not seen since 2017. GBP is the worst performing G10 currency in July to date and was the worst performing in the second quarter as well. On a TWI basis, GBP is close to its post-referendum lows.," MUFG notes.
"So through the negotiation phase, there is a chance we may see some liquidation of these shorts if there is some hope negotiations go better than expected. But ultimately we see an increased potential of GBP probably testing post-referendum lows through September/October – 1.1840 in GBP/USD and 0.9300 in EUR/GBP," MUFG adds.