While the British Pound has stabilized over the course of the past 24 hours it retains a soft underbelly with analysts saying further near-term losses are likely, even if ultimately there remains a chance the EU and UK will agree on a free trade deal before the year ends.
Political uncertainty will remain elevated – conditions that traditionally aid Sterling’s weakness – after the UK Parliament passed the first stage of the Internal Market Bill with the Government winning by 340 to 263.
There was speculation that a sizeable mutiny amongst the Conservative Party was growing, however, this ultimately never materialized.
The EU has given the UK until the end of the month to amend controversial elements of the Bill or face being sanctioned as some elements of the legislation contained in the Bill would give the UK the right to override elements of the Withdrawal Agreement. (See the explainer at the bottom of the article).
With the UK intent on pursuing the legislation, it appears the two sides are set for a showdown that could ultimately result in trade negotiations breaking down altogether.
Either way, uncertainty is high and in this febrile atmosphere, the Pound is expected to remain under pressure with any strength ultimately proving limited.
“GBP has predictably fallen in the aftermath of these developments, with EUR/GBP pushing towards our previous 0.91 targets. But given the potential scope of the political and economic implications of pushing in this political direction, we now raise our near-term EUR/GBP target to 0.9200,” says Shahab Jalinoos, a foreign exchange analyst at Credit Suisse.
EUR/GBP Short (Sell)
ENTER AT: 0.92480