GBP/USD to see a sharper sell-off as risk of a no-deal Brexit increases – MUFG

The pound has underperformed after Wednesday’s evening dinner talks between UK Prime Minister Boris Johnson ad European Commission President Ursula von der Leyen failed to make a decisive breakthrough in trade talks. The likelihood of a no-deal Brexit outcome is increasing which boosts the risk of a sharper pound sell-off in the coming days, Lee Hardman, Currency Analyst at MUFG Bank, briefs.

Key quotes

“Both sides have agreed though that talks should continue in the next few days despite major differences remaining between the UK and EU, and that a firm decision will need to be taken on the future of negotiations by 13th December. It should now be a lot clearer by the end of the weekend whether the UK will leave the EU with a trade deal with the EU or on WTO terms.”

“European Commission President Ursula von der Leyen is due to debrief EU Leaders about the discussions with Boris Johnson at today’s two-day Summit. Market participants will be watching closely to see if there is any political contact between German Chancellor Merkel, French President Macron and Boris Johnson in the coming days in an attempt to break the deadlock.” 

“At the current juncture, the balance of risks appears to be shifting to the downside for the pound as the end game approaches for Brexit talks. Hopes for a last minute trade deal are fading.”