Pound Sterling Swings As Brexit Talks Heat Up

News of a Brexit agreement triggered a rally in the pound sterling this week.

FX Strategist Weighs Brexit Scenarios

Richard Falkenhäll, senior FX strategist at the Nordic corporate bank SEB, said he expects that EUR/GBP will move to 0.835 if the U.K. Parliament approves the Brexit agreement Saturday, Oct. 19.

“This weekend’s vote on the withdrawal deal in the House of Commons will undoubtedly generate a reaction in the GBP. The knee-jerk reaction would be to bet on GBP weakness in case the agreement is rejected by the U.K. Parliament, while we probably will see a stronger GBP if the deal is accepted. Then uncertainty would finally go away, as the U.K. will then depart from the EU on 31 October.”

SEB expects the reaction in the sterling to be highly negative in the event of a no-deal departure from the EU, trading around parity with the euro, Falkenhäll said.

"In contrast, a scenario where the U.K. would revoke article 50 and remain in the EU would probably boost the GBP, and in this case the EUR/GBP could trade towards 0.79."

If Parliament approves the Brexit agreement Saturday, it is likely to slightly boost the pound and take the EUR/GBP towardn the 0.8350 level, he said.

The market is confused about Brexit and what to do with it, said TD Ameritrade Holding Corp. AMTD chief market strategist JJ Kinahan.

"We’ve never had anything like it before, so there’s no playbook here. So I don’t know that the market is pricing in anything big one way or the other."

If the U.K. Parliament rejects the deal or attaches a confirmatory referendum to it, the U.K. government could be forced to ask the EU for an extension.

The iShares MSCI United Kingdom Index EWU was down slightly at the close Friday, while the Vanguard FTSE Europe ETF VGK was up 0.12%.

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