Many political commentators have argued that the U.K. should hold a general election to determine which party leads the country through the Brexit process. Although Theresa May held onto her leadership in a no-confidence vote on Wednesday, the likelihood of securing a Brexit deal before the March 2019 deadline is uncertain after the cancellation of the parliamentary vote on Tuesday.
Others are campaigning for a second referendum on Brexit, which could also trigger a snap election if the public voted to overturn its decision to leave the European Union (EU).
This week has been notably volatile for sterling, with the currency trading below $1.25 levels. Sterling is down 0.7 percent since the start of the week in a fairly fluctuating trading session.
“It’s extraordinary, but this will stay with us for quite a long time,” Costa said. “If you look into the option space, if you want to insure your portfolio against adverse sterling fluctuations the volatility now is extremely high.”
“Corporate investments aren’t super insured, so we don’t believe that there’s enough coverage in corporate books for a big sterling shock,” he added.
Costa told Squawk Box that the pound would fall “much lower” as May attempted to persuade EU leaders to renegotiate the terms of her Brexit withdrawal agreement.
“We can break $1.21, 1.22 easily if we continue in this unfortunate block,” he said. “We are coming closer to a tipping point. The position of power of our prime minister is still being battled and this trip to Brussels was unfortunately a disaster – they understand that May doesn’t have the support base she wanted at this point.”
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