UBS thinks that the pound could drop by as much as 10 percent against the dollar and the euro if the United Kingdom crashes out of the European Union without a deal.
In a note that was sent to clients last Wednesday, a currency strategist at UBS, Daniel Trum, and the chief UK economist of UBS, Dean Turner, wrote: “At current levels, the currency is still pricing in a benign outcome. A hard Brexit could easily see sterling lose another 10%, in our view.”
The uncertainty of a no-deal Brexit also called a hard Brexit, is regarded as increasing after the events with regard to the Brexit negotiations for the past two weeks.
The Brexit deal of Theresa May, the Prime Minister of the United Kingdom, was rejected by MPs for a second time last week. The British PM was then blocked by the speaker of the House of Commons from introducing a third vote unless her deal changes in a meaningful manner. The European Union have indicated that they are not willing to reopen the negotiations on the agreement, only if the United Kingdom “clarify” its contents. Thus, leaving the path to ratifying a Brexit deal unclear.
Further raising the risk is the fact that PM May has ruled out requesting for a long extension to the negotiating period of Brexit. Last Wednesday, she wrote to Donald Tusk, the President European Council to request for an extension to the Brexit schedule to the 30th June from the 29 of March. However, the European Union are understood to only be willing to grant an extension until late May and it will also only be offered if British MPs back Theresa May’s deal.
Unless PM May can get her MPs on-side or convince the European Union to grant an extension without the approval of her deal, the default position remains that the United Kingdom will leave the European Union on the 29th of March
Trum and Turner wrote: “We believe a no-deal exit will be prevented by MPs, but as the clock runs down, the risk of an accident grows.”
They added: “Moreover, delaying Article 50 does not eliminate the risk of a no-deal exit. Many paths can yet lead to this outcome.”