The pound is vulnerable to further pressure as traders weigh the possibility of the U.K. crashing out of the European Union without a deal.

Sterling fell to the lowest since April 2017 on Monday as Prime Minister Theresa May postponed a key vote in Parliament to approve her EU withdrawal agreement and vowed to step up preparations for a no-deal exit, investors’ biggest fear. The currency has since retraced some losses but strategists don’t see much reason for optimism heading into the Christmas holiday.

Here’s what analysts and fund managers had to say after Monday’s announcement:

BBVA

  • “With the uncertainty set to remain high in the coming days, the pound is likely to remain on tenterhooks as in the absence of clarity, the market reaction is by default to sell,” wrote strategists including Alexandre Dolci in emailed comments
  • “The biggest risk for sterling, and also for the euro, remains a disorderly exit but all options remain open including a new election or even a second referendum”
  • Continuing uncertainty limits any potential retracement, after cable fell back below US$1.26 temporarily and with EUR/GBP remaining above 0.90
  • The option market has taken a more sanguine view, as GBP implied volatilities have only been marginally raised and GBP puts have not really become more expensive

AMP Capital Investors

  • “It’s a mess -- in a world of turmoil Brexit has become a bit of comic relief, it’s like a British comedy,” said Shane Oliver, head of investment strategy at the Sydney-based asset manager
    • “It’s more than two years now since the Brexit vote and most of that time leaders have taken to arguing among themselves”
  • The pound may fall to $1.20 as the vote delay has increased the uncertainty over Brexit
  • “I’ll say stay away for now. It’s just too hard to trade the pound. You can’t really trade it on technicals because it’s driven by political announcements that flip and flop”

BlueBay Asset Management LLP

  • “We are now at a crisis point, the U.K. is now in a very difficult situation,” according to portfolio manager Mark Bathgate
  • BlueBay is shorting both the pound and gilts on the basis that gilts will also be weighed in the medium term by factors including currency-induced inflation and slowing growth
  • The EU is unlikely to re-open withdrawal agreement negotiations and the current deal won’t get through Parliament, said Bathgate, who sees the pound heading back to 2016 lows

Unicredit SpA

  • “Although the political scenario in Britain has become even more fluid, uncertain and complicated, renewed pressure on sterling is unlikely to fade quickly,” wrote strategists including Roberto Mialich
  • See GBP/USD exposed to a further selloff below US$1.25 and EUR/GBP “potentially trading further above the 0.90 threshold”
  • Expect EU to refuse to re-open the withdrawal agreement, at least before the U.K. parliament has voted on it, and believe that the best that May can hope for from the bloc is a letter of assurance that the Irish border backstop will be temporary
    • “This is unlikely to be enough to persuade Conservative Brexiteers and the DUP to support the deal,” the strategists add

Credit Agricole

  • The threat of a no-deal Brexit “leaves us hopeful that a Brexit deal that is acceptable for both the U.K. and the EU would be found before long,” strategists including Valentin Marinov wrote in a research note
  • They see the pound recovering and stick with a constructive view versus dollar and euro over a six-month horizon

--With assistance from Ruth Carson