Hard Brexit could see sterling and euro reach parity

Sterling is set to fall to 95 pence on the euro in the case of a hard Brexit, new analysis as projected.

According to analysts at Investec, the euro will strengthen to 95 pence versus the pound by the end of the year, and 97 pence in the second quarter of 2019, if there’s a hard Brexit.

The firm’s head of treasury, Aisling Dodgson said the scenario is based on a UK exit from the EU without a transition period or agreement on regulatory alignment and Britain leaving the EU customs union.

It does not allow for an even more destabilising so-called worst-case scenario – where planes don’t fly and medicine supplies run out.

However, an alternative scenario, of an orderly transition, would boost the pound – to 87 pence in the final quarter of this year and 88 pence versus the euro in early 2019, Investec thinks.

With scant progress in talks to date, traders are increasingly pricing in a harder scenario.

Sterling fell to 90.390 pence per euro on Friday – an 11-month low.

“The markets increasingly sense that the risk of no deal is greater. I don’t think anyone would really suggest otherwise,” Aisling Dodgson said.

“At the end of the day our baseline case is if you strip it down to fundamentals it’s in no one’s interest for there to be no deal, but there are a couple of situations where you could see relationships breaking down,” she added.