The market doesn't believe in European deadlines
MUFG Research highlights the importance of the EU Leaders Summit on 15th and 16th October for the pound, but notes that one-week implied GBP/USD volatility points to a limited scope for sharp GBP moves over the coming weeks.
"The upcoming EU Leaders Summit on 15th and 16th October will provide an important test of whether the GBP's recent upward momentum can be sustained. The UK government has repeatedly threatened to walk away from trade talks if a deal is not reached by 15th October which poses downside risks for the GBP in the week ahead. However, according to recent media reports a more likely scenario is that both sides find a way to carry on intensified talks ("tunnel negotiations") into the second half of the month," MUFG notes.
"One-week implied GBP/USD volatility has picked up modestly over the past week but is not particularly elevated suggesting that market participants are not overly concerned over the risk of a sharp GBP move in the week ahead," MUFG adds.
