GBP remains fragile – Danske Bank
Analyst at Danske Bank Mathias Mogensen assessed the current stance around the Sterling amidst some improvement in Brexit negotiations.
“EUR/GBP dropped from 0.8980 to 0.8849 last night on the news that the UK and EU have agreed on the principle of the divorce bill, meaning that the UK is going to pay EUR45-55bn after Brexit”.
“Some important issues remain unresolved such as citizens’ rights and the Irish border. Thus, while yesterday’s progress in negotiations has increased the likelihood of a deal ahead of the upcoming EU Summit, it is still not given that negotiations will move to phase 2 (future relationship) due to a lack of progress”.
“Expect GBP to remain very sensitive to Brexit-related news in coming days as the UK still has until 4 December to make additional efforts to resolve differences. As such, we do not see a case for a significant rally in GBP short term even if an agreement is reached with the EU as it is still too early to price out Brexit risk premiums, in our view”.
“We still see EUR/GBP within the 0.8650-0.90 range in coming months with risks becoming more balanced as improved prospects of a Brexit deal weighs against EUR/GBP supportive factors such as relative rates, growth, and the domestic political uncertainty in the UK. In the absence of any further positive news today, we could see EUR/GBP climbing back above 0.89 again”.