GBP Soars on Brexit Boost by EU’s Barnier


GBP Analysis and Talking Points

  • GBPUSD reclaims 1.30 on positive Brexit newsflow
  • GBPUSD at risk of further short squeeze with net shorts highest since May 2017

See our Q3 GBP forecast to learn what will drive the currency through the quarter.

The Pound reclaims 1.30 amid a raft of positive Brexit commentary from EU Chief Negotiator Barnier, who stated that the EU are open to discussing other backstops for the Irish border, adding that they are ready to simplify checks. Reminder, this followed source reports earlier this week that Germany and the UK are said to drop key Brexit demands and seek less details with regard to post Brexit ties.

As has been mentioned previously, the reaction to these comments from Barnier emphasise that GBP is attractive on dips with the Pound more reactive to positive news, given that the markets have priced in bearish news. This has been highlighted in speculator positioning with GBP shorts at the highest since May 2017, suggesting that the attractiveness to chasing GBP lower has reduced.

GBP Soars on Brexit Boost by EU's Barnier

Demand for Protection Against GBP Declines Reduced

Within the option market, demand among investors for hedging against further declines in GBP has been redcuced, with 3-month 25 delta risk reversals pulling off recent lows. This has typically tracked the spot price and as such, suggests that GBP is due a bounce back. Of note, this metric also covers the Brexit deadlines in October and November.

GBP Soars on Brexit Boost by EU's Barnier

Source: Thomson Reuters

Additional Analysis on Sterling and Brexit

GBP: Sterling Building A Base on Brexit Progress – Nick Cawley, Market Analyst

GBPAUD Long: Re-priced No-Deal Brexit Risk, US-China Trade War Continues – Justin McQueen, Market Analyst

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX





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