Petr Krpata, Chief EMEA FX and IR Strategist at ING, notes that the UK Parliament has now been suspended for the next five weeks, with legislation against a no deal Brexit in place and for now, GBP may enjoy a calmer period with occasional upside caused by the still-stretched positioning.
“Given our base case for early elections in late November / early December (likely to be triggered by a vote of no confidence) we expect GBP to come back under pressure. Among other things, the possible victory of the Conservative party under the leadership of Boris Johnson would mean an increased likelihood of no deal Brexit should Conservatives achieve a Parliamentary majority.”
“This suggests that the current subdued risk premium in the pound will increase, in turn weighing on the currency. We expect EUR/GBP to converge towards the 0.95 level and GBP/USD to fall below 1.20 over the next three months.”