Sterling has been largely sensitive to Brexit movements, although volatility in the currency has subdued in the last month since Britain and the European Union agreed to delay the departure until October 31, 2019. It has been suggested by analysts that the removal of immediate risks of a no-deal Brexit has helped calm the nerves of investors, who appear to be anticipating a deal will eventually be thrashed out. The latest Reuters poll of foreign exchange strategists is predicting Sterling could rise by three percent if Brexit is delivered with a deal in place. However, the findings warn of a five percent fall for the pound if negotiations fail.
This is a sentiment shared by Nigel Green, founder and chief executive of deVere Group, who said the pound is currently looking undervalued and can expect to appreciate.
Since the Brexit referendum took place, the pound is down 14 per cent against the euro and 13 per cent against the US dollar compared to the day of the vote in June 2016.
Mr Green suggests Sterling could even soar back to pre-referendum levels should Britain and the European Union reach a deal.
He said: “Nothing has of any substance been achieved and everything remains up in the air.
“The longer the Brexit process takes, and it is clearly taking a long time, the closer the final relationship between the UK and the EU will be.”
He continued: “When Brexit is finally delivered, investors are advised to be on the watch for a rally in the pound, UK stocks and a spurt in economic activity as sidelined household and business spending kicks in.
“In the new environment, should a soft Brexit be delivered, there is a possibility that the pound could rise to pre-referendum levels against the pound.”
Analysis from Bloomberg suggests the pound will only shift significantly should a hard Brexit take place, provoking what analysts anticipate will be a “knee-jerk” reaction.
The report goes on to suggest anything other than Britain leaving without a deal will only spark a “shallow” reaction, suggesting investors are already pricing this into account.
In the analysis, the report read: “A decisive Brexit development could prompt a substantial market reaction, but the follow through after the initial knee-jerk move may be shallow unless a disorderly exit takes place.
“The latter would take the market into uncharted territory and sterling could enter free-fall mode.”
Neil Jones, Head of hedge fund currency sales at Mizuho, said demand for trading Sterling, whether in options or spot markets, had fallen following the delay.
This week has seen Prime Minister Theresa May avoid an imminent threat to her leadership after the 1922 Committee voted to change party rules which protect the Prime Minister from a no confidence vote until December by nine votes to seven.
Sterling made a brief surge yesterday afternoon off the back of the news with exchange rate watchers suggesting the pound took comfort in the prospect of political upheaval being kicked aside.
As of 12.54pm UK time, the pound was trading marginally up against the euro at €1.1571, an increase of 0.03 percent.
Versus the US dollar, Sterling is worth $1.2873, down 0.21 percent.