GBP: Upside risks heading into December’s summit - MUFG
|One yen cross pair that could extend higher in circumstances of continued broad-based dollar weakness is GBP/JPY, suggests Derek Halpenny, European Head of GMR at MUFG.
Key Quotes
“We see increased upside risks for the pound with clear signs of progress being made toward a financial settlement that prompts a formal shift to transition and trade talks beginning in January. We might get a better sense of that today with PM May meeting European Council President Donald Tusk at the EU summit in Sweden. What appears very clear is that financial settlement negotiations have moved on from whether more than EUR 20bn should be paid to what is an appropriate amount.”
“David Davis was asked yesterday if the UK was offering between EUR 20bn and the gross EUR 100bn starting point of the EU he responded by stating “let’s wait a few more weeks on that”.”
“Option flows show greater GBP put demand through most of this week while leveraged speculative futures positioning is certainly not at am extreme which suggest to us scope for speculative GBP buying if we continue to see progress toward a deal being reached and confirmation on a shift in talks to transition in December. Market participants are understandably wary at this point but risks are increasing of a sudden lurch higher on these signs of progress.”
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