Rising fears of a disorderly Brexit have put pressure on the pound, with sterling falling 2.4% against the US dollar and the euro over the last three trading sessions. The new UK government under Prime Minister Boris Johnson has warned that it is working under the assumption of a no-deal Brexit. Three-month implied volatility on the pound – which lines up with the current 31 October exit deadline – climbed to a four-month high on Tuesday.

But, in our view, the sense of inevitability about a no-deal Brexit that is creeping into markets and media coverage is misplaced. A no-deal exit on 31 October remains a risk, but our view is that this is more likely to happen by accident rather than design. What we are likely to see in the weeks ahead is a Brexit reset.

* A reset will first be sought by Prime Minister Johnson, who will likely seek meaningful changes from the EU on the previously negotiated Withdrawal Agreement, focusing in particular on the Northern Ireland backstop. But we think that the chances of success here are minimal. Some small tweaks may be possible, but nothing as substantive as the new PM will be hoping for, and importantly, not enough for him to get backing for the Withdrawal Agreement from UK MPs.

* As we approach the end of the summer, Johnson's new UK government is likely to be faced with few achievable changes to the existing Withdrawal Agreement, a small possibility of passing this through parliament, and time running out. Thus, despite his repeated claims that leaving the EU without a deal is not his preferred option, Johnson may pursue this route.

* Faced with the prospect of a no-deal Brexit, something a majority of British MPs have shown they are against, we expect parliament will force Johnson into seeking another extension to Article 50. And then will come the bigger reset – the reset of British politics via a general election. Going back to voters may not be desirable, but in our view it seems to be the most logical way for the new PM to resolve the Brexit question.

The ultimate outcome remains highly uncertain. But the important point is that although concerns over a no-deal exit on 31 October are high, they are unlikely to be realized. Brexit has a long way to run before it reaches a conclusion, and there will be a few resets along the way. So, in our view, in the near term sterling is oversold and in our FX strategy we overweight the British pound versus the US dollar.

Within international developed market stocks, we are tactically neutral on UK equities. The longer-term risk-return outlook for UK equities looks uncertain, in our view. While the UK was formerly seen as a conservative, lower risk market, prolonged Brexit uncertainties could lead to rising risk premiums. Returns in local currency terms could also be limited if the pound rallies.