“The High Court’s decision that Parliament needs to support Article 50 before the government can trigger it is about the process of leaving the EU and in no way challenges the referendum’s decision to leave. Should the Supreme Court uphold the High Court’s decision, the government would have to bring in a new law, voted on in Parliament, to leave the EU. That could be subject to much debate over what Brexit will look like in both the House of Commons and House of Lords and it could delay PM Theresa May’s plan to trigger Article 50 before the end of March 2017. Needless to say, if the Supreme Court overturns the High Court’s decision, expectations of a hard Brexit will spring back.
In the short term, therefore, the political situation is something of a vacuum and some scaling back of hard Brexit-related bearishness towards the sterling may be prudent over the coming weeks. Sterling’s most recent slide started in early October as the Conservative Party conference got underway. Sterling was trading just below 1.30 vs USD back then, so a recovery towards a 1.28-1.30 range is feasible, and possibly more likely if the Supreme Court upholds the High Court’s decision.
…We highlighted this view Outlook for November, arguing that a pause for breath in sterling’s decline was warranted. That was premised largely on the view that the hard Brexit story was largely discounted based on available information and recent political rhetoric. We also anticipated that the BoE was likely to revise up its inflation forecasts in the November Inflation Report and that the case for additional easing in the near term was not there. What we did not know a couple of weeks ago was what the ruling of the High Court would be.
Therefore, our expectation that sterling would trade in a 1.20- 1.25 range over the next six months or so might be vulnerable to a more sustained topside break driven by expectations of potentially greater balance returning to the Brexit debate. We therefore see upside risks to our current sterling forecasts of 1.25-1.30 vs USD in the coming months, but would be hesitant to get more bullish that that until the political and legal framework becomes clearer”.
Copyright © 2016 ANZ, eFXnews™
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