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Dec 09 - 09:55 PM

GBP/USD - COMMENT-Sterling Exposed As No-Deal Brexit Gains Traction

By Andrew M Spencer  —  Dec 09 - 08:05 PM

Sterling has remained resilient as the risk of a no-deal Brexit increases, quickly halving an initial 0.5% drop after a top-level dinner between Prime Minister Boris Johnson and the European Union's chief executive ended without a breakthrough nL8N2IP1BD. A decision has been deferred to Sunday, but there is real potential for a selloff in the pound.

The consensus among economists is that a no-deal Brexit will cause major disruption to both economies, but especially the UK nL8N2IL099. British exports to the EU could face tariffs of as much as 40%. Agriculture and fisheries would be hit especially hard. Trade flows would face a sharp increase in bureaucracy.

A Dec 4 Reuters poll suggested the market continues to expect a Brexit deal, with the median 12-month GBP/USD forecast at 1.39, up from 1.35 in the November poll, though expectations of a lower USD are a factor nL8N2IJ2LZ.

As the market is not heavily short, a hard Brexit should see GBP slide.
The UK government's poor performance on the coronavirus hardly inspires confidence in its ability to successfully manage potentially the largest disruption to the UK economy in a generation nL8N2I94SG.

Initial GBP/USD support is at 1.3210, 38.2% of the September-December rise, then the 1.2854 November low.
A deal
would see a test of 1.3677, 76.4% of the 2018-2020 fall.

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Source:
Refinitiv IFR Research/Market Commentary

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