Bank of America Global Research discusses GBP outlook in light of the latest Brexit trade deal developments.
"Brexit has flitted in and out of the market’s consciousness through the last month as US elections and Covid vaccines took centre stage. At the time of writing, a deal has not been reached despite the UK government claiming that a landing zone is in sight. Whether this is political spin of genuine optimism remains to be seen, but we would emphasise that these sentiments have not been shared by the EU. Nonetheless, this has not stopped the markets insatiable (wrongly, in our opinion) appetite to buy GBP on any headline: no news is bad news as far as GBP is concerned," BofA notes.
"We believe that the market is broadly positioned for a Brexit deal. Quantifying this view and the market is pricing in a ~80% chance that a deal will be reached. This remains our base case scenario though we think the market is overly complacent on the risk of a no deal. Our scenarios are as follows: base case of a deal: GBP/USD: $1.35; EUR/GBP: 0.88; no deal: GBP/USD: $1.10; EUR/GBP: 0.95," BofA adds.