GBP to get hit on signs of complete loggerheads between UK-EU officials - ING

Viraj Patel, Foreign Exchange Strategist at ING, suggests that while it may be tempting to paint this week's EU leaders summit as a make-or-break moment for GBP, they would not see the failure of a transition agreement being reach this week as a reason to sell the currency.

Key Quotes

“Indeed, for that to be the case, one would have to assume that a positive transition deal outcome – as early as this week – is priced into the pound. We don’t think that this is the case – though would note anecdotally that investors broadly expect a ‘smooth’ Brexit adjustment.”

“In our view, that would mean a transition needs to be agreed over the next few months – with an earlier agreement having a greater positive impact on UK asset prices (including GBP).”

“Investors this week should focus on the tone of Brexit talks – where we think only signs of complete loggerheads and a lack of appetite from either the UK or EU to concede on key sticking points would see GBP's recent resilience come majorly unstuck. We think downside risks for GBP/USD this week may be contained to 1.3750-1.3800 (approx -1.5%).”