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#1 21-10-2019 16:02:26

johnedward
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GBP/USD: pound is testing 1.30 despite Brexit uncertainty and could...

GBP/USD: pound is testing 1.30 despite Brexit uncertainty, and could climb to 1.35 (Goldman Sachs)


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While one would have expected the pound to fall sharply in the face of the new Brexit rebound, as last week's agreement was not voted in the UK Parliament this weekend, the GBP/USD pair is doing well today, testing the key psychological threshold of 1.30 for the first time in 5 months.

Indeed, even if Brexit has not been approved and could be postponed again, the market mainly retains that things are moving forward, and that in the absence of having validated an agreement, the UK parliament has lowered Brexit's chances without agreement with its Saturday decisions.

In this regard, it should be noted that a team of Goldman strategists, led by Zack Panda, made its assessment in a note to clients yesterday, one day after a parliamentary vote forced Prime Minister Johnson to ask the EU for a three-month deadline for the UK to leave the block currently scheduled for 31 October (Halloween!).

Boris Johnson told EU leaders in a separate letter that any further delay would be a mistake. He hopes that his revised Brexit agreement with Brussels will receive Parliament's approval by this Friday.

Goldman Sachs expects an increase to 1.35 of the GBP/USD if Johnson's agreement is reached this week

Goldman's strategists predict that the agreement could be adopted by Parliament today or tomorrow, and that the British pound will "continue to rise after an agreement". The new forecasts reinforce the bank's previous bullish position, which had forecast an increase in the GBP/USD to $1.30.

Panda and his team said that initial disappointment over Saturday's vote would probably weigh on the GBP, but that would dissipate as a Brexit agreement was "postponed, and not simply refused".

Goldman admits, though, that there is still a significant risk that Johnson's agreement will not be accepted, which would most likely bring the pound down to $1.26.

"We do not expect a return to the low value of $1.20 given the high probability of an extension. Second, MPs can amend the agreement and related legislation to include either a second referendum, accession to a customs union or new elections," the strategists said, adding that they do not believe either of these measures can succeed.

"A successful amendment for an election is the main risk for the GBP in our opinion, although both sides of the political spectrum are likely to offer equivalent or more flexible forms of Brexit. The crucial conclusion is that it is unlikely that the risk of exiting without an agreement will increase significantly, which will limit the downside risks for the GBP," GS says.

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