Pound Traders May Shrug Off Adverse Brexit Headlines This WeekBy
Pound bulls shouldn’t be too concerned if the EU’s draft treaty on Brexit ignores demands by the U.K. for a longer transition period.
The currency has been wedged in a narrow 200-pip range in the past week ahead of the document that is due to be published on Wednesday, with the European Union’s chief negotiator Michel Barnier saying many areas of disagreement remain.
“The narrative that is being priced into sterling markets over the past few days is that this week’s events -- May’s speech and EU text -- will not yield any Brexit consensus,” said Viraj Patel, a currency strategist at ING Groep NV. “That shouldn’t come as too much of a surprise to pound investors and so we don’t necessarily think that a lack of progress this week would be an active reason to sell.” Patel forecasts that the pound will climb 3 percent to $1.43 by the end of March.
The EU’s draft legal text is seen ignoring U.K. demands for a longer Brexit transition period and leaving out a key compromise Britain seeks on the land border with Ireland. Still, even as signs of division mount with just over a year to go until Britain leaves the bloc, shorting the pound on Brexit risks has become a less attractive trade as the currency remains rangebound, said Patel.