Amid a new flurry of resignations on Thursday, Prime Minister Theresa May and her Brexit plans are vulnerable, throwing the British pound into a spiral lower as uncertainty looms.
The most high-level resignation came from chief Brexit negotiator Dominic Raab, making it the second in that office after David Davis stepped down in July.
Calls for a leadership challenge of May are also growing, with multiple letters of no confidence surfacing Thursday.
Against that backdrop, here is how currency analysts think the various scenarios might impact the British pound GBPUSD, +0.0470% So far, sterling was facing its worst one-day drop since June 2017 Thursday, falling some 1.6% to $1.2785.
Read: Currency traders betting on a Brexit deal are having a rough time
âAs weâve been warning, the odds of a no-deal Brexit have risen significantly,â wrote Win Thin, global head of currency strategy at Brown Brothers Harriman, in a Thursday report. âAnything that May and the EU agree to is unlikely to pass muster domestically. With no deal, the U.K. would be ejected from the EU with no transition period, making things even more disruptive.â
Check out: Brexit plan clears first hurdle but tough part lies ahead
Sterling would likely fall sharply if the British parliament voted ânoâ on a plan, as it would give the government only a limited period to put forward a new plan âwhich would make a no-deal Brexit outcome more likely,â Fawad Razaqzada, technical analyst at Forex.com, told MarketWatch.
âSterling is down big on these developments and is on track to test the October low near $1.27 and the August low near $1.2660. Longer-term charts point to an eventual test of the October 2016 low near $1.1840.â
Viraj Patel, FX strategist at ING, laid out some sterling scenarios in a tweet, suggesting a quarrel for the U.K.âs leadership could see the currency in the range of $1.24-$1.27 versus the U.S. dollar. In case of a no-deal Brexit scenario by March 2019, sterling could slip to a low of $1.20, he said.
âI think the best outcome for the pound would be if a second referendum is announced at some point down the line, although this seems very unlikely,â Razaqzada said.
This expresses itself in hedging flow, as corporates and others are trying to protect themselves against an ailing pound, which in turn pushes it lower, market participants said.
The euro-sterling pair EURGBP, +0.0338% âthought of as the main bellwether for Brexit sentiment earlier on in the negotiationsâwas up 1.5% with one euro buying ÂŁ0.8837.
âOn a hard Brexit we see risk of a move towards ÂŁ1.00 per euro, meaning that the vote in parliament on the PMâs deal will be crucial,â said Jane Foley, senior FX strategist at Rabobank.
Looking at the British pound-Japanese yen cross GBPJPY, -0.08% which pegs the U.K. currency against the safe-haven yen that tends to see gains during turbulent times, the downward trend is similar. The pound last bought ÂĽ144.89, down 1.8%.
âThe next major bearish objective is just below the previous major low at ÂĽ142.77 and if that level breaks cleanly then the psychologically-important ÂĽ140 handle could be the next objective,â Razaqzada said.
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