GBP/USD: Pound ignores political posturing for now – MUFG

Sterling is indifferent for now as Brexit talks head into crunch period. The pound is holding its ground with cable trading above the 1.2900-level and EUR/GBP below the 0.9100-level. The lack of pound movement is somewhat surprising considering that Brexit trade negotiations have deteriorated following last week’s EU Summit, economists at MUFG Bank brief. 

Key quotes

“The lack of pound weakness strongly suggests that market participants continue to believe that a trade deal will be reached and are not overly concerned by the latest political posturing. Michael Barnier and David Frost are expected to seek a way out of the latest Brexit impasse when they meet today.” 

“Market participants have welcomed a report from Bloomberg that suggest British officials are prepared to water down the controversial Internal Market Bill in a move that could help improve trade negotiations with the EU.” 

“If a last minute deal can still be reached before year end, the end of October/early November is now seen as the real final deadline for talks. In the meantime, we expect market participants’ confidence over a trade deal will be more severely tested. The risk of political miscalculation still exists even if it is in both sides interests to reach a deal.”