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- Another Brexit extension beyond October expected

- GBP/EUR rally into 1.20s now not likely in 2019

- But de Vere's Green says the Pound can go higher from here

Foreign exchange analysts at a leading Scandinavian lender have told clients they are lowering their forecasts on the British Pound.

Danske Bank say expectations for a protracted period of political uncertainty in the UK, and little prospect for Prime Minister May's deal being passed, make it necessary to lower their forecasts for Sterling that at one stage saw GBP/EUR going above 1.20 before the end of 2019.

"With a medium to long Brexit extension and no reason to believe PM May’s deal will pass any time soon, we think it is difficult to see much further GBP strengthening near term," says Christin Tuxen, Head of FX Research at Danske Bank in Copenhagen.

Tuxen says they have lowered their GBP forecasts throughout the forecast horizon as a result.

There remains little sign of a breakthrough in the Brexit process, with paralysis in parliament leaving little indication that any Brexit deal will be passed.

"It is difficult to predict what will happen when we get closer to the new Brexit deadline in October, but as we think a further extension is likely," says Tuxen.

We note Prime Minister Theresa May appears willing to avoid a 'no deal' Brexit at all costs, and if no deal is in place by October 31 we would expect May to ask for yet another delay.

However, as we have been reporting, the pressure on May to resign continues to grow, and an influential group of Conservative Party parliamentarians have requested May set out a timeline for her departure.

We see it being increasingly likely that another Prime Minister will be in place come October, therefore we would suggest another delay to Brexit is not a given.

For Danske Bank, the political uncertainty creates the necessary conditions to justify lower Pound-to-Euro exchange rate forecasts.

Danske Bank expect the exchange rate to remain in the 1.1764-1.15 range for the coming year.

More specifically, they target the exchange rate in the mid of this range: i.e. 1.16 in the 1-3 month time frame, down from a previous forecast of 1.20.

In six-twelve months the exchange rate is forecast at 1.16, down from a previous forecast of 1.22.

"In case of a no deal Brexit by the end of October, we still expect EUR/GBP to move towards parity," says Tuxen.

If May’s deal passes, we would expect EUR/GBP to move down to 0.83.

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A Pound Rally is Coming: deVere

deVere are one of the world’s largest independent financial advisory organisations.

Nigel Green, founder and chief executive of deVere Group makes the call as expectations for an update in Brexit talks between Labour and the Conservatives grows, with an agreement between the two parties being widely held as offering a potential boost to the UK currency as it would greatly increase the chances of a Brexit deal being voted through the House of Commons.

“Nothing has of any substance been achieved and everything remains up in the air,” says Green, "however, the one thing that does seem a relative certainty is that there will be some form of soft Brexit. The longer the Brexit process takes, and it is clearly taking a long time, the closer the final relationship between the UK and the EU will be.”

“Against the backdrop of a likely soft Brexit, the pound currently looks undervalued," says Green.

When Brexit is finally delivered, Green advises those watching the currency markets to expect a rally in the Pound, UK stocks and a spurt in economic activity as sidelined household and business spending kicks in.

"Should a soft Brexit be delivered, there is a possibility that the pound could rise to pre-referendum levels against the Euro,” says Green.

Since the Brexit referendum took place, the Ppound is down 14% against the Euro and 13% against the U.S. Dollar.