GBP: Not impressed by Brexit extension? - Rabobank

According to Jane Foley, senior FX strategist at Rabobank, the news that the EU has granted the UK parliament more time to compromise on Brexit was not greeted with enthusiasm by the pound.

Key Quotes

“GBP has recovered some ground this morning but.  There are several reasons for this.  Firstly, a delay was anticipated.”

“Last week European Commission President Tusk signalled his preference for a flexible delay of up to 12 months, so some investors may have been disappointed with the news that the Brexit deadline is now October 31.”

“Another key reason for GBP’s lacklustre response is that yesterday’s delay serves only to kick the can down the road.  The UK has now been saddled with a prolonged period of uncertainty which is likely to exacerbate the pressure on the economy and in particular the profitability of exporters.  We have revised lower our forecasts for GBP and now look for a move to EUR/GBP 0.84 in 6 month time (from a previous forecast of 0.82).”

“Even though we continue to assume that a Brexit deal is the most likely outcome and that this will spark relief, against the backdrop of a rocky outlook for both the UK economy and political system we have revised up our forecast for EUR/GBP to 0.84 on a 6 month view.”