News about the Brexit negotiation process and deadlines, each of which is always ignored by both parties, cannot but cause mixed emotions amongst market players. Nevertheless, traders are forced to follow this topic, since it has a great influence on the exchange rate of the pound sterling.
The negotiations between the UK and the EU can be compared to a swing: good news, bad news, good news again, and so on. The pound is also swinging in sync with this news. After the negative last week, traders are again dealing with positive Brexit messages, and the pound began recovering from Friday's lows when it fell below 1.32 against the dollar.
Chief Brexit negotiator Michel Barnier, admits the possibility of negotiating a deal. He also stressed that work is underway to agree on the conditions that must be met to conclude the deal. Meanwhile, Boris Johnson has little faith in the effectiveness of the negotiations, but London will not abandon them, like the deal.
There is little positive here, this information is rather neutral for the pound. However, the markets saw some positive signals or took wishful thinking. Be that as it may, the pound has begun to recover, despite implied volatility indicators, which indicate further price fluctuations ahead of the end of the term. Brussels and London have two weeks left to close the trade deal.
According to Commerzbank, the potential to conclude a deal by the end of the year can be traced. Therefore, at the moment, there is no reason to sell the pound, but you need to wait a bit. The situation is unlikely to be resolved in the coming days.
Deutsche Bank has a similar opinion. "We again believe that a deal is more likely," by the end of the week or a little later, everything will fall into place. Thus, the GBP / USD pair will break through the psychologically important 1.35 mark on the news of the agreement. Banking analysts see the pound at 1.36 in the event of a positive happy ending on the Brexit series.
"The confirmation of the deal will remove one of the biggest lingering risks for the pound," Deutsche Bank also noted.
A meeting of the Bank of England will take place this Thursday. The introduction of negative rates in 2021 is still on the agenda. Much here will depend on the impact of Brexit on the UK economy.
