The pound fell more than 1% after UK Prime Minster Theresa May stated Brexit negotiations were at an impasse and reiterated that no deal was better than a bad deal. The pound was already down against the Euro and dollar after the disastrous outcome of the Salzburg summit where EU leaders stated it wasn’t happy with the UK plan.
We still believe a hard ‘no deal’ Brexit is unlikely as it will not help either the EU or the UK. Arguably today’s statement by the PM was designed to get her through the upcoming Tory Party conference given her leadership will come into question. One thing we can be certain off it is that the pound will remain volatile until the November deadline as the political environment in the UK will be tense.
As we have stated previously, deal or no-deal, we expect GBPEUR to be lower as ultimately both sides will not be satisfied. If a last-minute ‘soft’ Brexit deal is reached, we expect the pound to strengthen against the euro to 1.05 in early 2019. But if a hard ‘no deal’ Brexit were to eventuate, we expect GBPEUR to depreciate around 15% within the first six months and falling below parity.