GBP/USD likely to react the most on Brexit deal outcome - Nomura

The analysis team at Nomura explains that the GBP traded weakly over the past few days, owing to market concerns over a no-deal Brexit remaining, even as the date of Brexit approaches.

Key Quotes

“Our Brexit stress indicator also rose slightly. In contrast with GBP cross reactions in 2016, the FX market’s reactions thus far this year have been different, leading to the relatively resilient performance of risk-on type currency pair, e.g., USD/JPY, against negative Brexit news.”

“The recent GBP cross-trading behaviours, which we believe demonstrates that GBP/USD is the most sensitive to Brexit risks for the time being. Our central case scenario for the Brexit outcome is not so pessimistic, and the avoidance of a no-deal Brexit is likely to cause the GBP to appreciate against USD the most, while EUR/USD will also react positively. However, should the political deadlock continue for a longer period, we will closely monitor whether the GBP trading behaviour will return to the one seen around the time of the Brexit vote and how broader risk sentiment and the market’s rate expectations could be affected.”