Brexit: a FX dealer's 'gut' pound forecast in 5 scenarios

The formation of the Independent Group this week has thrown yet another spanner into UK's Brexit negotiations. 

The UK is scheduled to exit Europe on 29 March, but this is looking increasingly like a pipe dream. 

What does this uncertainty mean for the value of sterling - which is currently trading just above the $1.30 testing level - going forward. 

Argentex FX dealer John Goldie offers some insight.  

'From an FX point of view, a lot of it is still just noise - politics may be getting uglier, if possible, but the overarching theme dictating sentiment is the likelihood of No Deal or Anything-But No Deal.' 

He adds: 'It is clear from the movement on sterling already that an avoidance of No Deal will send the pound higher, and the opposite is also true.

'I’ve seen some very extreme forecasts in either direction and while I often find myself sitting on the contrarian side, I would personally have the degree of movement in either direction tempered a little.'

Last week, when the pound was bouncing around at the $1.28 level, Goldie used his 'gut feeling' to come up with predictions for the pound under five Brexit scenarios. 

 

 

No Deal 

 

~1.20

 

Anything but a No Deal

1.30

Extension for further talks

1.32-1.34 ('with limited upside')

Extension for a second referendum

 

1.35-1.38 ('strong false-hope rally')    

 

May’s Deal

1.38-1.40 ('The obvious psychological targets but I am as yet unconvinced')