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If Boris Johnson shifts his Brexit plans, the pound could trade 'north of $1.35,' says UBS

Key Points
  • Incoming British Prime Minister Boris Johnson may need to rethink his stance on Brexit, given Parliament's opposition to a so-called hard Brexit, a UBS investor projects.
  • "Being a prime minister, things can change, and so maybe we also think about a little bit of an extension to the Brexit negotiation," Dominic Schnider tells CNBC's "Squawk Box."
  • Should Johnson soften his perspective on Brexit, the pound may "trade north of $1.30, $1.35," Schnider says.
Newly elected leader of the Conservative party Boris Johnson leaves Conservative party HQ in London, after it was announced that he will become the next Prime Minister.
Stefan Rousseau | PA Images | Getty Images

Incoming British Prime Minister Boris Johnson may need to rethink his stance on Brexit, given Parliament's opposition to a so-called hard Brexit, a UBS investor projected on Wednesday. That's likely to impact the weakened pound, he said.

Johnson, who won the race to the lead country on Tuesday, previously said the U.K. must leave the European Union by Oct. 31 "do or die, come what may."

But that may not continue to be his outlook as he weighs the best path forward.

"Being a prime minister, things can change, and so maybe we also think about a little bit of an extension to the Brexit negotiation," Dominic Schnider, head for commodities and Asia Pacific foreign exchange at UBS Global Wealth Management, told CNBC's "Squawk Box."

Should Johnson soften his perspective on Brexit, there will be consequences for the British pound, Schnider projected.

"If the market realizes that the hard Brexit probability starts to shrink, I think the pound can come back. So we're probably going to trade north of $1.30, $1.35, somewhere there," Schnider said.

The pound closed at $1.2436 on Tuesday, edging near the two-year trough of $1.2382 it brushed last week. The pound is down more than 13% since the U.K. voted to leave the EU on June 23, 2016. 

Recent sterling lows have been attributed to Johnson's insistence on Brexit.

"In our view, Johnson's desire to push for Brexit, deal or no deal, increases the chance of an early general election and some possibly (of) nasty GBP outcomes," Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, wrote in a recent note.

A reduced probability of an upcoming British election, due to disagreements on Brexit between Parliament and Johnson, could also give the pound a lift, Schnider told CNBC.

However, he noted that it wasn't necessarily the election's outcome that would make a difference to sterling.

What's more important for traders, he said, is the sentiment about whether "the U.K. and European Union jointly try to solve this issue and not depart in an unfriendly way."

A "no-deal" Brexit, which investors are concerned will happen come Halloween, will mean the U.K. leaves the European bloc without reaching a formal deal. That is, there would be no transitional period for the British government to negotiate free trade deals. Many have suggested such a disorderly exit risks damaging the U.K. economy.