Cable is down 162 pips to 1.3036 today
MUFG Research discusses GBP outlook in light of the latest Brexit vote developments.
"The recent pound sell off has been triggered by the outlining of both the EU's and UK's demands for an extension to Article 50 beyond the end of March. Prime Minister May has chosen the higher risk option of asking for just a short extension until the end of June...At the same time, the EU have clarified that they would be open to a short extension but only if PM May is able to pass her Brexit deal," MUFG notes.
"The best outcome for the pound in the near-term would be if the intensified pressure proves successful in passing a Brexit deal by the end of this month. It could lift cable lift towards the 1.3600 level and lower EUR/GBP further below the 0.8500-level....
However, the odds currently do not look good for such a favourable outcome. It is more likely that MPs will continue to reject PM May's Brexit deal, and then both the UK and EU will have to more seriously weigh up the alternative options of a "No Deal" Brexit or a longer extension to Article 50. The heightened risk of a "No Deal" Brexit could see cable briefly fall back towards the 1.3000-level and EUR/GBP rise back towards the 0.8800-level in the week ahead," MUFG argues.
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