GBP/USD to Rebound to 1.2650 on Rumours of 'Brexit Lite'

pound exchange rate 1

Strategists at Morgan Stanley are arguing that the pound will probably rally from its current rock-bottom lows to 1.2650 due to the government reconsidering its “Hard Brexit” stance.

Reports the Prime Minister Theresa May has assured the head of a large foreign car manufacturer that their export competitiveness would not be hit by Brexit has led to speculation the government may pursue a softer line in Brexit negotiations, which is forecast to lead to a rebound in the pound.

“The FT reports that the UK may be prepared to keep paying billions to maintain single market access for the City, and reported over the weekend that a foreign car producer in the UK was assured by Mrs. May that its export competitiveness would not be hit by the result of Brexit negotiations,” said the note from Morgan Stanley.

The currency has further been supported by comments from Bank of England’s (BOE’s) Mark Carney that the BOE will take into account the weak pound at its future monetary policy meetings.

This infers the BOE will not want to overly weaken the pound which might start a ‘run on the currency’ or lead to hyperinflation for foreign consumer goods.

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Morgan Stanley's View Chimes with Technical Outlook

For a technical perspective, we have been of the view there is a sizeable chance the pair could recover after it spiked down due to the very long hammer which formed on flash crash Friday.

Elongated hammers of that size almost always signal exhaustion – followed by reversals of the dominant downtrend.

Whilst this has not yet happened, it is still a probability as long as the hammer's low at 1.1450 holds.

A break above key resistance at 1.2510 would provide the confirmation required to move higher, to 1.2650 or higher.

 

 

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