By Jonathan Cable
LONDON (Reuters) – Sterling could be in for a bumpy December as Britain’s informal membership of the European Union expires at the end of the year and the two sides have yet to agree on their future trading relationship, a Reuters poll found.
The pound has travelled a rocky road since Britons voted to leave the EU in June 2016, with the currency fluctuating on any Brexit news, but diplomats said on Thursday they hoped a trade deal with Britain could be agreed by Friday or at the weekend.
Currently hovering just over $1.34. medians in the Nov. 30-Dec. 3 poll suggested it would trade between $1.31 and $1.36 this month. Against the euro it will trade between 88 to 91 pence, close to Tuesday’s 90.2p.
“The market seems 75-80% priced for a deal and thus in the event of no deal the downside is much greater than the upside if there is a deal,” said Colin Asher at Mizuho Bank.
Suggestions by several officials in the EU that negotiators will soon review overall progress is widely seen as a positive sign after weeks of impasse over three main issues – fisheries, economic fair play and settling disputes.
A British minister said he believed “good progress” was being made at talks but cautioned London would not sign up to a deal not in its interest.
However, derivative markets were flashing red on Thursday amid doubts Britain and the EU can strike a deal before the transition period ends, offsetting any optimism from Britain becoming the world’s first country to approve the Pfizer-BioNTech COVID-19 vaccine.
But successive Reuters polls of economists since the referendum have said the two side would reach agreement and the wider poll of 50 foreign exchange strategists said the pound would climb to $1.39 in a year’s time, stronger than the $1.35 forecast given last month. [ECILT/GB]
Against the common currency the pound will be at 89p in a year.
“The margin for sterling to appreciate against the greenback is significantly higher as the euro would also benefit from a deal. Sterling is significantly undervalued against the dollar and a Brexit deal would favour sterling outperformance,” said Roberto Cobo Garcia at BBVA.
A confidence boost from a successful closure to the Brexit drama would offer extra support for the pound as the U.S. currency is under growing downward pressure from the prospect of a new round of massive stimulus from the new Democrat administration.
Alongside that, investors continue to ditch the dollar in favour of risky assets and higher returns so the greenback’s weakening trend will last at least another six months, the poll found.
(Reporting by Jonathan Cable; polling by Hari Kishan and Sujith Pai; Editing by Toby Chopra)