Sterling continues good run as no-deal looks less likely

Jan 23, 2019

Sterling has sustained its good run as traders continue to reduce their bets of a no-deal Brexit outcome.

Although there’s still a lot of ongoing Brexit uncertainty – with no agreement on how and when the UK will leave the EU (or if we even will!) – the majority in Parliament are against us leaving without a deal on 29th March. It’s becoming highly likely that Labour will now back an amendment that could stop a no-deal Brexit from happening. Many feel that a so called ‘hard’ Brexit would be a disaster for the Pound and the UK economy.

A no-deal risk premium had been heavily priced into Sterling by traders, but, now that this seems very unlikely, they’ve started to recalibrate their positions according to the reduced risk of this scenario playing out. The odds are now only around a 10% chance of disruptive departure on 29th March.

As a result, the Pound has pushed through some key levels, with the GBP/USD market rate breaking over the key 1.30 level and now trading at a 2-mth high. The GBP/EUR has also moved to a fresh 2-mth high.

We are by no means out of the woods yet regarding Brexit and a lot can still happen. As previously mentioned, however, there is a growing number of market participants that feel the Pound could have a good year providing a no-deal scenario doesn’t play out. The Pound has already moved quite a way this week and might look to take a little break fairly soon until/before we get more news/progress on Brexit.