ING's James Smith and Petr Krpata, CFA, note that they continue to see GBP as unprepared for the stream of downside risks, and following the market complacency during the summer months, they estimate that only a limited degree of risk premium is priced into the currency (just around 1% in EUR/GBP vs 5% risk premium pricing in late June). This allows for a further GBP decline.

"We look for EUR/GBP to break the multi-month high of 0.9176 in coming days. Not only is a limited degree of risk premium is priced into GBP, but the speculative positioning does not seem stretched (the latest CFTC data still show a neutral positioning in GBP/USD), in turn allowing for a build-up in GBP shorts which would help facilitate further GBP downside."

"As we noted in this article, GBP: Summer is over, brace for the reality check, should there be no trade deal, we expect EUR/GBP to break above this year’s high of 0.95 and potentially test parity."

"Indeed, even with a limited deal in place, the change in UK-EU trade terms would leave the UK at risk of a slower recovery versus its peers, taming the potential medium-term upside to both GBP spot and its fair value. In the case of no trade deal being agreed, such a trend would gain even more traction and, coupled with the likely response and more easing from the Bank of England, which could include the possibility of negative interest rates, the outlook for sterling would clearly deteriorate and the currency would come under further pressure."