Pound to face huge volatility on December 11th
Published on 03.12.2018 21:45

The British pound is going to face its biggest test on December the 11th since the UK voted to leave Brexit and the outcome is going to create volatility in the sterling not seen for many years.

The decision next week will see the British parliament vote on a deal made by British Prime Minister Theresa May with the EU on the terms surrounding Britain’s exit from the EU and the result boils down to 3 scenarios.

The first, which is now favoured by some analysts is that the date for Britain to leave the EU will be extended giving both sides time to revise the deal which will keep the pound under pressure for a lot longer.

"In our eyes, the most likely scenario is that the exit date will be moved to the end of 2019, meaning that the uncertainty surrounding Brexit will not subside," says Kari Due-Andresen, analyst at Handelsbanken.

"We believe that the EU would be likely to permit an extension of Article 50 and the postponement of the exit date in order to safeguard the democratic process. This means in practice that the UK’s exit from the EU would be postponed, probably until the end of 2019, with high uncertainty surrounding the process continuing as a result. We deem this scenario to be the most probable," he added.

The 2nd scenario is that the British parliament will approve Prime Minister Mays deal which will see the pound shoot higher like a rocket but as things stand, this is a longshot.

The third and final choice is that parliament rejects the deal and Britain keeps to its plans and exits the EU in March, which will send the pound into a tail spin and probably throw the UK into a recession.

“We believe this scenario would have disastrous consequences for the economies of both the UK and the EU. Sterling would nosedive in the recession that we expect would probably follow," says Due-Andresen.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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