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Short GBP positions vs EUR and JPY stopped out Stops were triggered on GBP in the aftermath of the Supreme Court’s ruling against the government on the manner by which it can trigger the Article 50.
The ruling was less disruptive than it could have been for the government's plans to get the ball rolling on EU-exit talks by the end of March (the devolved parliaments do not need to be consulted about this).
Nevertheless, GBP took some comfort from the involvement of parliament in the Article 50 process, presumably on the basis that greater parliamentary scrutiny could divert the UK from the Eberhard Brexit trajectory that it appeared to be on.
We disagree with the notion that parliamentary involvement will change the fundamental negotiating dynamics (i.e. it won’t change the UK government’s red-lines on migration and the ECJ, nor alter the EU’s positon that the UK has an all-or-nothing choice) but we're not going to fight the price action and turn neutral on GBP for the time being, even if we believe that a hard Brexit will still entail a softer GBP through time.
The government will spend the next few weeks trying to secure a tight parliamentary mandate for Article 50 and in the absence of any major developments, GBP could be supported both by the marked improvement in UK rate expectations (the BoE could swing to a tightening bias late in the spring if inflation fails to squeeze the consumer) and European politics (although we are reluctant to recommend an outright short position in EURGBP to hedge French/Italian risk –currencies such as CHF or SEK are far better suited to that role).
Initiate longs in EURGBP at 0.8746, at spot ref: 0.8556. Stopped out at -2.17%.
Stay short GBPJPY at 142.976. Stop at -2.38%.
