The pound is becoming quite tricky to trade, says NAB, as Brexit negotiations look complicated as well, as analyzed by BofAML. What’s next?
Here is their view, courtesy of eFXnews:
GBP/USD: ‘Extremely Unlikely’ To Achieve Progress Before Article 50 Deadline – BofAML
Bank of America Merrill Lynch FX Strategy Research notes that Brexit headlines continue to add headline risks for GBP after another round of Brexit negotiations ended last week without progress, and ahead of the European Commission announcement on October 19 on whether discussions on trade can start.
“The current pace of the discussions makes it extremely unlikely, in our view, to achieve any substantial progress on trade before the Article 50 deadline.
At some point in the next few months, the UK government will have to face reality and decide between asking for a long extension of the current regime to have enough time to negotiate a new trade arrangement with the EU, or to walk out without a deal and go to the WTO cliff.
Our baseline is more consistent with the former, but it is too early to tell which one the UK will choose. The closer the deadline, the stronger the EU’s negotiating power, in our view, as the UK has more to lose. The FX implication is higher GBP volatility ahead, and tactical trade opportunities,” BofAML argues.
GBP/USD: Becoming Harder To Trade? What’s Next? – NAB
NAB FX Strategy Research notes that GBP has become harder to trade as of late as the combination of erratic political comment and fluctuating economic data is leading to some sizeable GBP swings.
Looking forward, NAB outlines circumstances that could see 5%-10% swings in GBP/USD either in direction.
“GBP’s roller-coaster is exacerbated by, on the one hand, thoughts of a General Election (the actual reality of one coming we think could see GBP fall 10% on the prospect of a Labour Government).
On the other stands any EU offer of a two year Brexit transition deal (to March 2021) which could see a 5% to 7.5% GBP rally on the basis the UK avoids a cliff-edge and sees its trade environment unchanged for the next three and a half years,” NAB argues.
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