Pound-to-Euro Exchange Rate Putting in Temporary Base

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The British Pound has seen its sell-off against the Euro ease over the course fo the past three days, suggesting a temporary base might be forming.

We saw the exchange rate dip down to 23-month lows at 1.0812 on Tuesday, the pair has since stabilised towards the 1.0845 region.

Volatility in the pair has died down quite considerably considering the ongoing political tensions and uncertainties facing the UK.

A tough Autumn awaits Sterling, and we wonder if markets are awaiting fresh information before either selling Sterling lower, or bidding it higher.

For now we would maintain that any strength is likely to be temporary in nature, observing the overwhelmingly bearish technical trend that has dominated the market since May.

Betting on a rebound in Sterling is akin to catching a falling knife and caution is warranted.

"We now consider leaving the EU without a deal as the most likely scenario and hence have lowered our GBP forecast levels accordingly. Parliament forcing a general election but then the Conservatives and the Brexit Party winning is our likeliest scenario. We expect some GBP recovery in 2020," says Derek Halpenny at MUFG, the global investment bank.

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