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EURGBP Scenarios Ahead of the Brexit Deadline


Posted: Friday, September 18th, 2020

Estimated Reading Time: 2 minutes

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The EURGBP cross is one of the currency pairs that consolidated the most in 2020. After it reached the 0.90 level, which seems pivotal, it just hovered around.

Uncertainty about the Brexit outcome is the main reason behind the EURGBP indecision. Even if the EURUSD had one of its strongest rallies in years, the EURGBP did not follow.

Goldman Sachs issued this week a perspective on the exchange rate. It considers both a “deal” and a “no deal” scenario and the implications for the currency pair.

EURGBP

Goldman Sees EURGBP Parity in a Disorderly Brexit

The risk of a disorderly Brexit increased somehow recently. The United Kingdom signaled it stands ready to violate international law for a favorable Brexit Treaty – a move that stunned the European Union and the international community. It proposes an Internal Market Bill that violates the terms of the post-Brexit deal already agreed with the European Union.

The EURGBP cross was the first one to react. It rose five big figures, from 0.88 to 0.93, before giving up some gains.

Because it reacted so aggressively to the news, the exchange rate tells us the market’s expectations. Therefore, if we are to have an educated guess, a disorderly Brexit will have a positive on the EURGBP exchange rate.

At the opposite end of the spectrum, the 0.87 reflects the two parties reaching a “deal.” During the last three months, the cross pair hovered around 0.87, as expectations grew that a deal is possible.

Boris Johnson’s Approval Rating Declines Sharply

In the meantime, the U.K. Prime Minister’s popularity declines. His approval rating declines, as more and more Brits consider that he should stand down.

EURGBP Exchange Rate

The recent bill proposed would violate international law, something that goes against basic British principles. If the bill succeeds, the risk is that the U.K. will simply become a trading partner for the European Union, with no free-trade agreement in place.

Trading the EURGBP in the months ahead requires caution. Moreover, traders choosing to do so should use reduced exposure. Furthermore, it might be a wise choice to have a longer-term vision and horizon for the trade. Otherwise, the risk is that the wild moves expected in the currency pair will affect both bullish and bearish bets.

Everyone waits for the Brexit saga to end. The divorce divided a nation and weakened Europe in the face of its rivals. However, it is not too late to find a viable solution for both parties.

Until then, expect the EURGBP to swing based on how the odds of a “deal” or “no deal” change.

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