Brexit thoughts from Bank of America / Merrill Lynch via eFX. For bank trade ideas, check out eFX Plus
Bank of America Merrill Lynch FX Strategy Research notes that Brexit headlines continue to add headline risks for GBP after another round of Brexit negotiations ended last week without progress, and ahead of the European Commission announcement on October 19 on whether discussions on trade can start.
"The current pace of the discussions makes it extremely unlikely, in our view, to achieve any substantial progress on trade before the Article 50 deadline.
At some point in the next few months, the UK government will have to face reality and decide between asking for a long extension of the current regime to have enough time to negotiate a new trade arrangement with the EU, or to walk out without a deal and go to the WTO cliff.
Our baseline is more consistent with the former, but it is too early to tell which one the UK will choose. The closer the deadline, the stronger the EU's negotiating power, in our view, as the UK has more to lose. The FX implication is higher GBP volatility ahead, and tactical trade opportunities," BofAML argues.
