Some analysts change the Pound's projection to be bearish, because the Brexit deadline extension is considered to have ransacked the planned increase in interest rates. The pound was observed to experience limited gains in trading. The GBP / USD currency pair rose around 0.22 percent to 1.3102, while EUR / GBP fell 0.22 percent to 0.8638. Even so, a number of analysts changed their forecast for the pound sterling from bullish to bearish, because the brexit ("brextension") deadline extension was considered to have ravaged the Bank of England (BoE) rate hike plan.
Analysts from ING Group said, the Pound will weaken against the Euro and US Dollar in the next six months, because the withdrawal of the Brexit deadline until October 2019 is likely to disrupt the planned increase in the BoE rate and trigger political turmoil in the next few months.
Might Lose It’s Potential
"With enough lack of opportunities for short-term resolutions for the Brexit standoff, we think the window for this (interest rate hike) has been a little more closed," said Christ Turner, chief strategist at ING Group, "In fact, six months of extension won't be enough long for the Bank of England to raise interest rates (this year), so that GBP will lose potential positive catalysts."
Turner also cautioned in his client's note, "The market has not taken into account the risk of 'Hard Brexit' earlier this year, (but) the risk of leadership changes in the Conservative party in the third quarter ahead of the end of the internal congress in September. Europeans like Boris Johnson, can bring a number of moderate risks to Sterling again and cause weakness. "
In line with these uncertainties, Turner cut its forecast for EUR / GBP and GBP / USD this year. Now, he expects Sterling to fall to 1.1363 versus the Euro before the end of September, then stay within the same range before rising to around 1.1560 at the end of the year. While GBP / USD is expected to fall back to 1.27 before the end of September. In fact, some time ago ING Group estimated its position would be between 1.33-1.35 in the same period.
Experiencing Brextension Blues Despite Expectations
GBP / USD trades in the mid 1.1300an, similar to the level seen on Thursday. Volatility has dropped and has implied the volatility that the cable expects. The reason is a 6-month delay in Brexit until October 31. European Council President Donald Tusk said that Britain might rethink Brexit and maybe cancel it altogether. Some lawmakers called for a second referendum but PM Theresa May reiterated his refusal to take the path.
However, May hinted that anything might happen in talks with the opposition Labor Party. The Conservative Party seems to warm up to the customs union that the opposition wants. Gentler Brexit is a better outcome than May's agreement with the EU and un-agreed Brexit. This is good news for the pound. On the other hand, ongoing uncertainty weighs on Sterling. Many are worried that Britain will be in the same place in October, with a political deadlock. In addition, constant obstacles have affected the economy. The Bank of England may not raise interest rates even if Brexit is canceled altogether.
Parliament returned from recess only on April 23, but high-level data figures are due for release next week: inflation, employment and retail sales. Meanwhile, the economic calendar is mild. The Conference Board's main index for the UK is not expected to make any waves. In the US, Consumer Sentiment is interesting. A high level of confidence is expected in the initial reading for April.
Michigan Consumer Sentiment Index Preview
US data released on Thursday were quite optimistic, with PP rising more than expected and jobless claims falling to 196 thousand, the lowest since 1969. Fed officials repeated patience about interest rates. Overall, speculation about Brexit remains the center of attention today, but we are unlikely to get a new guide.
