The British sterling increased on December 15 as markets became more hopeful a Brexit deal would be reached. British Prime Minister Boris Johnson stated a no-deal end to UK’s transition period for trade with the European Union was very likely. Hence, the pound declined by $1.3135 last Friday.
However, it reached as high as $1.3444 on Monday. Meanwhile, the release that negotiators agreed on Sunday to exceed expectations to reach a deal. The European Union’s chief Brexit negotiator announced an agreement was still achievable.
Additionally, the sterling resumed this trajectory on Tuesday. At 1550 GMT, it increased by 0.5% and settled at $1.3397 as traders waited for additional updates on negotiations. The pound rose by approximately 0.5% against the euro and reach 90.75 pence.
However, it briefly declined on news that Johnson had told the cabinet that no-deal was the most expected outcome, but soon recovered.
According to Ulrich Leuchtmann, Commerzbank’s head of FX and commodity research, the sterling was in wait and see mode.
He announced that it is reasonable to get a deal done before the end of 2020, and there is no reason for a sterling sell-off at the moment. Leuchtmann announced that he anticipates nothing in the following few days.
The United Kingdom and the European Union have just over two weeks left to negotiate a deal. It covers approximately $1 trillion in annual trade before the UK loses zero-tariff, zero-quota access to the European Union’s single market on December 31.
According to weekly futures data, speculative positioning on the sterling turned net bullish in the week to December 8. The statistics suggest the market is still optimistic about the chance of a deal.
Shreyas Gopan thinks that a Brexit deal would witness a pound rally to about $1.36
Sterling-dollar implied volatility gauges with a one-week maturity. They dropped from their eight-month highs reached on December 11. Nonetheless, they remain high, indicating that additional price swings are still likely in the short term.
According to Shreyas Gopan, Deutsche Bank Strategist, a deal is firmly more possible than not. The risk is tilted towards full resolution by the end of the week. He thinks that a Brexit deal would witness a pound rally to about $1.36.
He added that confirmation of a deal would eliminate one of the enormous lingering risks for the sterling. It would allow the market to take out the raised negative rates pricing for the last several days.
Furthermore, the Bank of England’s meeting is going to take place on Thursday. According to analysts, the risk of negative rates introduction in 2021 depends on Brexit’s influence on Britain’s economy.
