GBP/USD: The likelihood of a Brexit agreement is increasing, pound to rally 8-10% – Westpac

The end of UK’s transition period (31 December) is fast approaching, yet negotiations continue with differences still to be resolved. However, the lack of any comments from negotiators over the past week suggests that solutions may now be on the table and potential for a deal to be agreed upon before the end of the transition period is rising. Strategists at Westpac attempt to assign probabilities around four possible outcomes to the current negotiations and its implications for the pound.

Key quotes

“A deal by mid November, approved by a special EC Summit, endorsed by EU Parliament’s 24-27 plenary session and ratified before mid-December. 45% chance and could see GBP lift 8-10%.”

“Agreement is elusive by mid-March but a deal is found by early December, approved by EC’s 10-11 December Summit, endorsed by EU Parliament’s 14-17 December plenary session and ratified as soon as possible afterwards. 35% chance and could see GBP lift 5-8%.”

“No deal but agreement to work together towards a standard third party FTA. Trade under WTO terms/rules but allow for some form of logistic implementation. 10% or so chance. GBP would likely side 5-8%.”

“Acrimonious no deal. Immediate fall into WTO rules with disorderly and disruptive customs, border controls and cumbersome bureaucracy. Under 10% chance. GBP would likely fall some 12%.”