Above: Theresa May and Jean-Claude Juncker in Brussels on the morning of December 8. (C) European Commission, Pound Sterling Live.
Pound Sterling recovered on news the E.U. and U.K. have concluded the first phase of Brexit negotiations; we ask the analyst community where they see the U.K. currency going from here.
U.K. Prime Minister Theresa May has worked the phones through Thursday night and on the morning of Friday, December 9 was able to announce a deal to complete the first round of Brexit negotiations had been reached.
The Pound rose sharply in anticipation of this outcome as news of progress hit the wires but we have actually seen the Pound paring gains into the weekend on the actual announcement as traders 'sold the fact'.
At the time of writing the Pound-to-Euro exchange rate is testing fresh five month highs at 1.1367. The Pound-to-Dollar exchange rate is at 1.3385.
But, we are told Sterling should enjoy further upside into year-end amidst improved sentiment.
Here are the latest views and forecasts on the back of the news:
Neil Jones at Mizuho Bank Ltd:
"A Brexit breakthrough pushes GBP onto the 1.35 handle. Many in the market looking for this and selling out longs. The divorce bill & EU citizens rights were deemed as agreed anyway. Conspicuous in its absence is anything tangible on Northern Ireland demands and of course the European Court of Justice. Not a surprise frankly to see the Pound sell off."
Ross Walker at RBS:
"The bar is relatively low for a positive surprise and for Sterling to retrace part of its post EU Referendum losses.
"The UK has made significant concessions to the EU and a transitional deal has become more likely. This makes a cliff edge less likely. Despite the more positive path of travel, Sterling has failed to take back much of its post Referendum decline; this may change in 2018.
Thu Lan Nguyen at Commerzbank:
"At their summit next week the EU heads of government are thus likely to give the go-ahead for the next round of the negotiations. Sterling is likely to benefit from this news today. However, the next contentious issue on the Brexit question is no doubt not far off. It is therefore too early for the GBP bulls to breathe a sigh of relief."
Derek Halpenny, European Head of GMR at MUFG:
"We are optimistic that agreeing a transition deal will not prove difficult. Both sets of negotiating principles released at the very beginning make clear what would be expected if a “status quo” transition period is required.
"Our optimistic forecast for the pound going forward (above the 1.4000 level in 2018) is now more achievable after this important step today."
Viraj Patel, Foreign Exchange Strategist at ING Bank:
"Politicians moving away from seeking to protect their own domestic interest and slowly moving towards a mutual agreement – is unambiguously positive for GBP.
"While agreeing a ‘divorce bill’ has little economic significance for the price of GBP, the political significance of progress in Brexit talks is quite profound.
"A Brexit transition deal is the antidote for GBP’s uncertainty-driven weakness; markets are underestimating the cyclical economic benefits this would bring."
ING hold the view a Brexit transition deal will be agreed early next year, they look for any positive repricing of GBP risks to come through in 1Q18 and target GBP/USD moving up to 1.40. The GBP/EUR exchange rate is forecast to rise to 1.1627.
Oliver Harvey, Macro Strategist with Deutsche Bank:
"We see some structural upside for GBP if a transitional deal emerges early next year along with a re-rating of the growth outlook. But clarity on the former is unlikely to emerge until after the December EU Council and there is renewed concern about the future of PM May's leadership.
"We therefore take a profit on our short EUR/GBP recommendation and will revisit the sterling outlook at the January Blueprint."
Hamish Muress, currency analyst at OFX:
"The pound could set a new high against the dollar come the end of the year. If negotiations move forward at a steady enough pace in 2018 for sterling to hold onto the momentum from this morning’s gains, then a new trading range may well be on the cards.”
Robin Wilkin at Lloyds Bank Commercial Banking:
"That deal was announced this morning and as such it is hard to see what will now drive GBP significantly higher on this theme. Key technical levels will now be important in terms of short-term price action."
Regarding the Pound-to-Dollar exchange rate Wilkin says:
"For now, momentum remains positive, so we can see a push towards 1.3600 still, with intra-day support lying at 1.3480/60."
Regarding the Euro-to-Pound exchange rate Wilkin says:
"Prices are breaking down through recent range supports in the 0.8750-0.8720 region. Momentum remains bearish at this stage."
James Rossiter at TD Securities:
With phase two of the negotiation looking to get underway, we think Brexit risks may fade a bit from the market’s consciousness – at least for the near term.
This suggests that market attention will revert back to more traditional drivers over the next several weeks. There, we have seen some momentum build in the UK’s macro landscape.
Rossiter believes the market’s overall enthusiasm for the GBP somewhat subdued over the next month or two until more clarity emerges.
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