Banks turn more optimistic on Brexit deal as mood music improves
Reuters
Published Oct 11, 2019 14:46
Banks turn more optimistic on Brexit deal as mood music improves
LONDON (Reuters) - Major investment banks said on Friday they had become more optimistic on the prospects for a Brexit deal, following an upbeat meeting between the British and Irish leaders that buoyed the pound.
Irish Prime Minister Leo Varadkar on Thursday said that a withdrawal agreement could be clinched by the end of October, which would allow the United Kingdom to leave the European Union in an orderly fashion.
EU negotiator Michel Barnier and his British counterpart Stephen Barclay, meanwhile, held a "constructive" meeting on Friday, both the British and EU sides said.
The pound, British stocks, bonds, and Irish government bonds rallied, as investors scrambled to cover short positions, with the British currency hitting its highest levels in over three months. It was trading at $1.2622 at 1206 GMT.
Deutsche Bank (DE:DBKGn) said it was no longer negative on the pound.
"This represents a significant change of tune by the Irish government, that has so far been relatively pessimistic about the prospect of talks moving forward," Deutsche's foreign exchange strategist, Oliver Harvey, told clients.
JPMorgan (NYSE:JPM) meanwhile predicted a deal would be struck, noting the two sides appeared to have found a solution to the thorny Irish border issue. The bank now sees a 50% chance of a withdrawal agreement being struck with a "modified/time-limited" Irish backstop.
It had previously put the likelihood at just 5%.
Some remain doubtful. For one, time is short and any deal Johnson brings back from Brussels will need the British parliament's approval, especially from hardline pro-Brexit factions.
The British government is therefore likely to request an extension to the Brexit deadline and then hold a general election, UBS Wealth Management said. But it acknowledged that the chances of a Brexit agreement had nonetheless increased.
"The chances of a deal seem to have improved and the pound has moved accordingly but hurdles still remain," said Dean Turner, economist at the wealth manager.
"Time to thrash out the details of the deal are tight, and then there is the question of parliamentary approval."
A deal would prolong the rally in the pound, Turner said, predicting sterling would hit $1.35 and trade in the "low 80s" against the euro if there was an agreement.
Goldman Sachs (NYSE:GS) was ahead of the bunch however, sending a recommendation late last Friday for clients to buy sterling against the dollar, with a target of $1.30 compared with the then spot pound value of around $1.23.
They assessed the probabilities of a Brexit deal being struck at 60%.
Get The App
Political risk consultancy Eurasia Group raised its probability of a Brexit deal from 5 to 10%. But barriers to one were still substantial, they cautioned.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.