Sterling Finds Some Support But Brexit Fears Remain

GBP rose slightly on Tuesday to hold above recent lows although it remained vulnerable as traders still worry that Britain is headed for a no-deal Brexit. This even though parliament law makers have previously stated that it will not let this pass.

Sterling hit a new 23-month low against the euro overnight, with the losses largely down to strength in the single currency rather than more Brexit-related worries.

The Guardian newspaper reported late on Monday that Brussels diplomats briefed after a meeting with British Prime Minister Boris Johnson’s chief European envoy said it was clear Johnson had no intention of renegotiating the withdrawal agreement.

Johnson has said Britain will leave the European Union on Oct. 31 with or without a deal.

The risk of a no-deal Brexit in October has surged in recent weeks under Johnson, hammering the pound to its lowest in more than two years.

On Tuesday, sterling rose 0.3% against the dollar to 1.2173 , away from the 31-month low of 1.2080 hit last week.

Against the euro the pound recovered from a nearly 2-year low of 1.0811 pence to 1.0862, up 0.2% on the day.

In the run-up to the Brexit deadline at end-October, we expect GBP/EUR to remain volatile and maybe more so than we previously thought likely. Financial markets are taking Boris Johnson’s direct approach literally and, in the run-up to October.

We believe a less dramatic outcome at the end of October. We expect GBP/EUR to settle between 1.0989-1.1235  on the back of an extension and/or snap election.