UK: Season 1 of ‘Solving Brexit’ ends on a high as divorce deal is agreed - ING

In what is quickly turning into a reality TV show, the latest episode of ‘Solving Brexit’ has ended on a high for GBP, as a last-minute deal between Theresa May and the DUP on the Irish Border has enabled initial Brexit divorce proceedings  to be wrapped up, explains Viraj Patel, Research Analyst at ING.

Key Quotes

“Indeed, in a joint statement with PM May in Brussels, the EU’s Jean-Claude Juncker said that ‘sufficient progress’ has now been made – such that Brexit talks can move onto discussions over a future trade deal. While the divorce details will still need to be ratified by respective domestic politicians (EU leaders and the UK government), it looks as though this is now just a formality.”

“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 – not least as it reduces the tail risk of a 'no deal' scenario and a complete breakdown in negotiations. GBP is broadly higher on the news, although we may see some profit-taking as a reassessment of the Brexit political games looks to already be priced in.”

“While the hard part (trade talks) is still to come – and a realisation of this may keep GBP/USD capped at 1.36 in the near-term (EUR/GBP around 0.87) – we do ultimately believe that there is more upside left in GBP over the next 3 months. The catalyst for this will be a signed, sealed and delivered transition deal – which we have previously referred to as a weak GBP’s antidote. For now, it looks like GBP will be breathing a sigh of relief as Season 1 of ‘Solving Brexit’ comes to an end. But be sure to tune in to Season 2 early next year…”