Pound Sterling a Sell say Swissquote

- Brexit concerns to return, Irish border key flashpoint

- British Pound forecast to fall back to March 1 lows against the Dollar

- DNB Markets say Pound-Euro rate to revisit long-term lows, even if Brexit deal is secured

© Pound Sterling Live

Analysts at Swissquote Bank - the Swiss financial services provider - have entered April telling clients they believe Pound Sterling should be sold as the recent relief stemming from Brexit developments is likely to be short-lived.

"Sell Sterling," says analyst Peter Rosenstreich with Swissquote Bank in Gland, Switzerland. "Brexit pain and a cyclical downturn are weighing on the British Pound."

"Markets will react to the latest proposals for a border between the Republic and Northern Ireland," adds the analyst.

The British Government has recently floated plans to create a “customs partnership” arrangement to solve the Irish border issue post Brexit, details of which will be discussed with EU officials this month.

The border issues remains the single most contentious element of the divorce between the EU and UK and it will  need to be solved in a manner that satisfies both sides in order for a final Brexit deal to be agreed upon.

The new plans reflect the UK's belief that it can exit the single market and customs union while at the same time not needing to set up phsical checks on goods flowing between the North and the Republic. New proposals would see the UK act as the external frontier for the EU, collecting tariffs and carrying out other checks on imports, but it could take many years to introduce.

Rosentstreich's call would appear to reflect a belief that the EU will once again reject the proposal, which will in turn raise fresh questions as to whether the work achieved so far on Brexit will unravel.

In short, traders would do well to remember Brexit risks are yet to disappear.

Swissquote's call to sell the Pound is however at odds with many in the market who note the British Pound tends to do exceptionally well in April having risen every April for the past 14 years.

"A combination of the end/start of the UK tax year and a heavy month of dividend payments by UK corporates are factors which we think are at play driving GBP strength during April," says Kamal Sharma, an analyst with Bank of America Merrill Lynch Global Research.

Nevertheless, Rosenstreich says he is looking for GBP/USD to fail to break the 1.4251 high reached on March 27, a failure that could lead to a bearish extension to 1.3712 support.

Brexit jitters provide the underlying fundamental reason to expect Sterling weakness.

"A one-year clock is on the field for Brexit, highlighting the UK’s weakness. Europe has a massive internal market that companies can depend on for growth. The UK by contrast is fragmenting within itself, specifically in Northern Ireland and Scotland, and needs exports to grow. If a EU-UK trade war breaks, the UK is in much less desirable spot then Europe," says Rosenstreich.

The UK and EU will now sit down to negotiations concerning the future trading relationship, with a November deadline being set as the point at which the basic framework must be agreed.

As negotiations get underway we will get a sense of just how close, or far apart, the two sides are on the matter; if there is a wide gulf and negotiations turn acrimonious we would certainly expect the Pound to come under pressure.

"More broadly, worries of a trade war will put defensive stocks in demand. Cyclical and tech driven stocks will be exposed. Fair commodity prices depend on free trade: endangering this artificially tightens supply and drives up prices," adds Rosenstreich.

And it's not just the Pound-Dollar exchange rate that is likely to suffer as Brexit-related risks resurface, we are told by a leading Scandanavian researcher that the Pound-to-Euro exchange rate is also liable to struggle going forward.

"A lot of good news is now priced into the GBP, and we see increased risk for the GBP to come under renewed pressure as real activity and inflation slows and Brexit is coming closer, keeping our 12 months EURGBP forecast unchanged at 0.92," says Marit Øwre-Johnsen at DNB Markets, in a note dated April 3.

EUR/GBP at 0.92 gives a GBP/EUR exchange rate of 1.09.

Of note, it would appear that the end of Brexit negotiations will not offer the Pound any reprieve with Øwre-Johnsen saying she sees "further potential for GBP depreciation when outcome of Brexit negotiations are complete".

DNB Markets note UK economic growth has started to show some signs of slowing down lately and they see more to come. "Inflation is expected to trend down and give BoE less reason to worry about inflation overshoot," says Øwre-Johnsen who expects the BoE to hike more gradually than trading partners, due to negative growth effects from Brexit.

It is this pedestrian pace of interest rate rises that is expected to weigh on Sterling.

The EUR/GBP is forecast at 0.86 in one and three months and 0.92 at 12 months. This gives GBP/EUR at 1.1628 and 1.09 respectively; this is interesting as this suggests the Pound will trade towards the top of its ongoing long-term range over coming months before ultimately sliding.

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