GBP: Fading the peak in “No Deal” pricing – Nomura

Jordan Rochester, Research Analyst at Nomura, suggests that trading the road to Brexit has been a rough ride as the currency has several times detached itself from where rate spreads and macro fundamentals suggest it should be and then on some BoE forward guidance it snaps back again.

Key Quotes

“When negotiations are at a standstill it’s easy for the Brexit news flow to turn rather sour and therefore the market rather short GBP. But in dealing with the EU, the pattern is that a last-minute deal can be made. While we and the market stay focused on the tail risks, we need to keep in mind the base case.”

“We think a Chequers type of agreement or some form of it will go through and a political fallout is avoided in between. Right now the market is very focused on the negative tail risks, which we have advised to hedge for. But the market has now focused on the chances of political fallout so much that it could be just one headline of progress that could lead to a substantial short squeeze.”