Credit Suisse out with a timely note
Before Theresa May announced her resignation today, Credit Suisse put out a note saying it was very likely she would resign within a few days. With that, they looked at what was likely next and concluded that there is no way forward with the current makeup of parliament.
"The way out of the stalemate is likely to either change the Parliamentary arithmetic or call a second referendum. We think there is a very high chance of a general election," they write.
The problem with an election is that there are worries on both sides for GBP. Fears about a Labour win would hurt the business climate while a decisive Conservative win would increase the odds of a no-deal Brexit.
Before that happens, the Conservatives will need to pick a new leader and Prime Minister. Boris Johnson is the favourite and will say "he will renegotiate a deal with the EU but be willing to crash out if the deal cannot be found," according to Credit Suisse.
After winning, "we think the immediate strategy is likely to be to try and find a deal with the EU rather than jump straight to no deal in an attempt to unite the party," they write.
That will be a decisive moment but the likely outcome is that the EU rejects it. So Boris will have the option of asking for an extension. He's already saying he won't do that but he could change his mind once he's in power.
"The way out of the stalemate is likely to either change the Parliamentary arithmetic or call a second referendum. We think there are more chances of Boris Johnson asking for a fresh mandate from the public via a general election. There is also a chance that some pro-EU Conservative MPs leave the party if Boris Johnson becomes leader on a hard Brexit platform or vote against the government in a confidence vote. This means in our view there is a very high chance of a general election this year."
Then how the pound does will depend on the election results. It's probably too early to judge how scenarios unfold after an election but they believe that any reasonable scenario will be better than it appears on the morning after the vote.
