Europe Politics

Deutsche Bank goes bearish on sterling and raises the odds of a no-deal Brexit

Key Points
  • On Friday, Theresa May lost again in her bid to get her "withdrawal deal" approved by U.K. lawmakers.
  • Now lawmakers will vote on a number of alternative options.
  • None of the options are legally binding and have not been agreed by Europe.
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Sterling slips after UK Parliament rejects Brexit deal for third time

The chances of Britain crashing out of the European Union without a deal on April 12 have increased to one in four, according to Deutsche Bank.

The German lender said Monday that it was now bearish on the pound as confusion over the U.K.'s withdrawal from Europe continued.

The bank raised its estimate for the chances of a no-deal Brexit to 25 percent from 20 percent and is targeting an exchange rate of 90 pence per euro. On Monday, the euro was buying 85.61 pence.

U.K. lawmakers will carry out a series of indicative votes in Parliament Monday as they try to agree an alternative to Prime Minister Theresa May's unpopular Brexit deal.

The most likely option to command a majority of support is a customs union tagged on to May's deal.

Deutsche's base case scenario, which holds a 30 percent probability is that any consensus agreed by Parliament will fail to be enacted by the government and a general election will be required.

In its note, Deutsche said new elections should not be viewed positively and not just because of the potential for a left-wing Labour government.

"More relevant, in our view is the fact that polling suggests the result could be similar to that in 2017, which has led to the current parliamentary deadlock," said Deutsche Bank macro strategist, Oliver Harvey.

Harvey also reasoned that any longer extension request would commit the country to EU Parliamentary elections and force Britain to commit cash to the EU's next budget.

The note puts the chances of Theresa Mays "withdrawal agreement" being passed by the April 12 deadline at 15 percent.