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- GBP: Highly asymmetric reaction function - ING
GBP: Highly asymmetric reaction function - ING
FX Strategists at ING note that GBP has stabilised after the initial sell-off yesterday and pared most of its losses as Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to meet in Brussels this week (likely ahead of the EU summit on Thursday).
"We think a UK-EU trade deal narrowly remains the most likely outcome of talks, which should lead to an eventual but modest GBP rebound. We reiterate what we see as an asymmetric GBP reaction function to the UK-EU trade negotiation outcome, with modest upside in the case of a deal but profound downside in the event of no deal as fairly limited risk premium is currently priced into GBP. This is evident in our short term financial fair value model as well as in speculative positioning (where we recently saw position-squaring of GBP shorts). In our base case of a deal, we look for EUR/GBP to dip to 0.88 and range trade around this level throughout next year."
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