© Deutsche Bank

- GBP has further to run against USD, EUR says Deutsche Bank

- But PM May's Brexit agreement must pass House of Commons.

- Brexiteers crumbling under pressure from PM May, remain MPs.

The Pound is already the best performing currency in the G10 universe this year but it can still rise further against the Euro and Dollar over the coming months if Prime Minister Theresa May is succesful in passing her EU Withdrawal Agreement through the House of Commons, according to Deutsche Bank.

Deutsche Bank forecasts a further 10% upside for the Pound-to-Dollar rate this year, and 5% for the Pound-to-Euro rate, if Prime Minister Theresa May is succesful in passing the EU Withdrawal Agreement through the House of Commons.

That would eliminate the risk of a so-called no deal Brexit and set the clock ticking on a long period of negotiations that would then enable the currency market to renew its focus on traditional fundamental drivers like Bank of England (BoE) interest rate policy.

Sterling has already risen by 5.4% against the Euro this year and by 3.5% against the Dollar, as markets have become increasingly confident that a World Trade Organization (WTO) terms Brexit will be avoided

"Our base case remains a ratification of May’s deal is done and dusted by April at the latest, avoiding UK participation in EU Parliamentary elections," says George Saravelos, head of FX strategy at Deutsche Bank. "With positioning still moderately short the pound according to the IMM, and the prospect of a Bank of England hike in August due to strong labour force dynamics, this should be enough for further moderate upside in sterling by the end of the year."

Above: Pound-to-Euro rate shown at daily intervals.

Jacob Rees-Mogg, head of the influential European Research Group of MPs, said Tuesday that it appears the only available choice is between May's contentious and twice rejected EU Withdrawal Agreement, and no Brexit at all.

The comment was an apparent reference to his thinking on the predicament now facing Brexit-supporting MPs in Parliament, since the House of Commons voted to seize control of the Parliamentary agenda on Wednesday.

Rees-Mogg's shift has since prompted a series of others to follow suit. Former Foreign Secretary Boris Johnson has also shown signs of giving in to pressure from the Prime Minister, who's also said in recent days that a third rejection of her proposed exit model would risk "no Brexit at all".

"If we vote for the PM’s lamentable Withdrawal Agreement we are skewered. We run the risk of either weakening the Union, or else being forced to remain effectively part of the single market and customs union. But if we vote it down again there is now I think an appreciable risk that we will not leave at all," Johnson writes for The Telegraph.

Whether the UK leaves the EU with or without a deal is the difference between the country facing trade tariffs and non-tariff barriers on any business done with the EU, and it could also be the difference between whether the Bank of England lifts or cuts its interest rate next.

A so-called no deal Brexit could potentially undermine the outlook for inflation in the UK by reducing demand further down the line. As a result, policymakers have said they're reluctant to make any changes to interest rates before they know exactly how the Brexit saga will end.

The Bank of England has raised its interest rate by 25 basis points on two occasions since the referendum in 2016, taking the Bank Rate up to 0.75%, and has said repeatedly of late that elevated consumer price pressures mean it'll need to keep raising rates in the coming quarters.

Above: Pound-to-Dollar rate shown at daily intervals.

"If a no deal Brexit occurred we would forecast parity in EUR/GBP and 1.10 against the dollar, or in the event Article 50 was extended by nine months or more, a downward revision to our forecasts would result," Saravelos says. "The latter scenario would raise the prospect of Prime Minister May’s premiership ending and a new general election taking place, which we believe would be taken bearishly by the market, and increase the chances the BoE remains on pause through 2019."

Saravelos forecasts the Pound-to-Euro rate will finish 2019 at 1.2195, up from 1.17 on Wednesday, which implies an increase of almost 5%. The Pound-to-Dollar rate is seen closing the year at 1.46, up from 1.3192 Wednesday, which implies an further 10% increase.

Meanwhile, market focus has now turned toward April 12, which will see see government choose between a further extension of the Article 50 negotiating window and leaving the EU without a withdrawal agreement if the House of Commons has not backed the EU Withdrawal Agreement by then.

MPs have seized control of Wednesday's parliamentary business for voting on amendments to a non-binding motion, which is designed to enable them to show the government exactly what their preferred relationship with the EU will look like.

That win for opponents of the government could now give way to House of Commons votes on a permanent customs union with the EU, European Economic Area membership, another referendum and a range of other scenarios including the revocation of Article 50.

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