The GBP/USD Exchange Rate is Still a Sell as Brexit Isn’t Going Away

After taking the top spot in the G10 currency space on Tuesday, the Pound is the worst performer in mid-week trade.

After surging in response to Theresa May’s speech on Brexit, some analysts believe Sterling traders are now taking a finer look at the detail, and concerns may start to arise. 

"This is a key reminder that the Pound’s sensitivity to politics is alive and well, and volatility is here to stay," says Kathleen Brooks at City Index.

Brooks notes the Prime Minister’s comments about how the UK will leave the EU and the single market, were well-received by GBP traders, particularly May’s confirmation that Parliament will debate the final Brexit deal.

"This could limit further declines and prevent GBP/USD from breaking below 1.20 in the near term," says Brooks.

While some see Sterling stabilising and even recovering from here, others remain unconvinced, and see any strength as likely to be fleeting.

Strategists at TD Securities tell clients that GBP/USD exchange rate’s period of consolidation is coming to an end, and the only way to go is down.

TD Securities think conditions are ripe for Brexit-related risks to make a significant return.

“Investors appear to have priced out virtually all of the Brexit-related risk premium from sterling in recent weeks. We think that is likely to change soon,” says analyst Ned Rumpeltin at TD Securities in London.

Rumpeltin says Sterling’s post-flash crash period of consolidation appears to be coming to an end.

“While the near-term landscape argues for some volatility, we think the chances for GBPUSD to squeeze meaningfully higher are limited,” says Rumpeltin.

This is important as some commentators are saying the Pound may have been battered enough for now, and as such, the potential for a rally is growing, particularly if May is coy about exiting the EU’s single market.

“We return to our sell-on-rallies posture for cable and think a break below support at 1.1841 will usher in another phase of sterling weakness,” says Rumpeltin.

However, other strategists are not so sure this is the route to take with Sterling.

Indeed, there remains a good portion of the analyst community that favours a recovery in the currency.

"The markets see Brexit as a “buy the rumour, sell the fact” play. In other words, buyers of GBP are expected to return shortly after Article 50 is invoked," says Philip Wee at DBS in Singapore.

Elsewhere, UK high-street lender Lloyds Bank say they see the GBP/USD exchange rate recovering through 2017.

“The Pound should be supported by what we expect to remain a relatively resilient UK economy. Meanwhile, there is also scope for GBP/USD to benefit from a weaker US dollar, given that a lot of ‘good news’ surround ing a Trump administration, is already priced in,” say Lloyds.

Bookies Bet on Steep Decline

Meanwhile, bookmakers have reported growing interest in punters looking to take a pop on where the Pound is likely to bottom in 2017.

“The fears of ‘Hard’ Brexit have got the pound wobbling and we offer 8/11 that the year’s low will fall between $1.19-1.1," says Betway’s Alan Alger.

“A number of analysts have expressed deeper concerns for the UK currency, and a slide into the $1.09-1 territory is far from out of the question at 11/10," says Ager. “At 10/1, there’s even a sneaking feeling amongst our traders that the dollar could be stronger than the pound at some point this year.”

Betway Odds on the Pound:

$1.19-1.1: 8/11
$1.09-1: 11/10
$ to be stronger than the £ at any point in 2017 10/