The UK’s Supreme Court’s decision on whether Theresa May has the prerogative to trigger article 50 on her own or whether she needs to ask Parliament is fast-approaching.
Whilst this has been characterised as a critical event for Sterling with a binary outcome, ING’s FX Strategist Viraj Patel, suggests whatever the decision the outlook for the Pound is likely to be the same.
And for those hoping for a stronger exchange rate, the outlook is not encouraging.
Patel’s base case is for the court to rule that Parliament has a say on the triggering of article 50.
Previously this outcome would have been expected to result in a stronger Pound as it adds to the likelihood of the mostly pro-EU parliament having a softening influence on Brexit negotiation aims and strategy.
But Patel argues this is not likely to be the case.
If the Supreme Court rules in favour of MP’s having a say, it will probably simply allow them a vote on what is called a “three line bill” which only goes as far as ratifying the triggering of article 50.
It does not give them a say on the negotiation strategy.
It will also probably include a “non-defining Brexit speech by PM May,” but crucially for markets does not, “provide any guarantees over single market access and the passporting of financial services,” says Patel in a note seen by PSL.
The lack of hands-on involvement from PM’s, who might have a moderating influence on Britain’s Brexit negotiation stance, means that even a decision which previously would have been expected to be bullish for the Pound is actually unlikely to have any lasting positive impact whatsoever.
With the Dollar still benefitting from Trump-related backdrafts and rising interest rates, Patel targets GBP/USD to fall to 1.20 in the short-term, from a current exchange rate of 1.2336.
Those with GBP-USD payment requirements should ensure they are protected against any notable fall in Sterling by ensuring they lock in current rates. Alternatively those looking to take advantage of Sterling weakness should ensure they have relevant buy orders in place. Find out more here.
Contrasting with ING’s view is that of HSBC’s UK economist Liz Martins, who has briefied clients about Brexit risks and the Pound recently.
She is of the opinion that a decision by the Supreme Court to allow Parliament a say would potentially aid in the achievement of a soft-Brexit.
"We don’t think parliament will stand in the way of Brexit per se, but it could make a lot of noise over the details, and there is some risk of an early election in the UK, if it becomes unmanageable,” says Martins.
However, Martins says hard-Brexit is almost inevitable, regardless of what compromises are reached between Parliament and the Government.
Martins agrees with a growing consensus that the European side of the negotiating table is likely to be inflexible.
“The indications from European leaders, including Donald Tusk and Angela Merkel, also arguably point to a ‘hard Brexit’,” says the HSBC economist.
This has been backed up by recent comments from Jonathan Faull, a British ex-official in the EU commission, who said that Brussels would not let the UK ‘buy’ access to the common market if it left the EU, an idea recently bandied about as a Brexit bridging solution.
If correct then Sterling will likely fall as markets price in the prospect of the UK existing outside of the single market.