MUFG Research discusses GBP/USD outlook in light of the recent Brexit developments, and notes that the options market appears to price more risk of no-deal Brexit than in the spot market.
"Negative impact of Brexit uncertainty on UK economy is more evident The pound continues to trade on a softer footing in the near-term with cable falling to an intra-day low of 1.2852 overnight. The next key support level for the pair is provided by the 55-day moving average which comes in at 1.2810. Pound gains from earlier this year remain vulnerable to a further reversal the longer it takes to reach a Brexit deal," MUFG notes.
"There is clearly a risk that “No Deal” Brexit fears could intensify in the month ahead as time is quickly running out before the end of the Article 50 period. Those risks are better reflected in the options market so far where there has recently been pick-up in demand for downside pound protection.
In contrast, the spot market appears to be reflecting more optimism that a deal will be reached and that Brexit could be delayed and/or softened," MUFG adds.