• Speculation is growing that Brexit may be delayed.
• If proven to be correct, the CBA’s Currency team expects the British pound will spike 2% in a “knee-jerk reaction”.
• Longer-term, the bank says the direction of the pound will largely be determined by whether the UK actually leaves the EU.

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Speculation is growing that the United Kingdom’s exit from the European Commission, scheduled for March 29, may be delayed, according to various media reports.

If proven to be correct, the Commonwealth Bank’s Currency Strategy team believes it could send the British pound hurtling higher.

“The GBP/USD lifted by up to 50 pips to 1.3147 following the news, though has given back some of its gains since then,” says Joseph Capurso, senior currency strategist at the Commonwealth Bank of Australia (CBA).

“We think the GBP/USD can lift by 2% to 1.3360 in a knee-jerk reaction if Brexit is delayed.”

The GBP currently trades at 1.3129.

According to unnamed sources who spoke to Bloomberg, UK Prime Minister Theresa May is considering a plan to delay Brexit and stop the UK leaving the European Union with no deal next month.

May is expected to allow her Cabinet to discuss extending the deadline beyond March 29 at a crunch meeting on Tuesday, according to one source.

Following the meeting, May would then reveal the Cabinet’s conclusions in an announcement to Parliament.

The British pound was supported on Monday by the news that Labour leader Jeremy Corbyn has thrown his support behind a second Brexit referendum.

According to Capurso at the CBA, while the potential for volatility in the pound is “high” over the next two days, over the medium-term, its direction will be heavily influenced by whether the UK remains or leaves the European Union.

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