Markets are feeling more optimistic than ever that a Brexit deal is coming

Author: Justin Low | Category: News

Has the tide turned in the Brexit rhetoric?

GBP/USD 1M risk reversals
ForexLive
It certainly looks that way as I reckon this is arguably the most optimistic (not in terms of pound movement just yet) markets have felt about a possible Brexit deal being struck.

Sterling 1-month risk reversals have shot up into positive territory following the more upbeat developments overnight, implying that currency option traders are seeing significant upside for the pound in a month's time.

Adding to this, Deutsche Bank is just out with their latest note saying that it is revising its views on the pound and prospects of a Brexit deal following the meeting between Johnson and Varadkar yesterday:

"We are therefore turning more optimistic on Brexit. And we are no longer negative on the pound. This represents a significant change of tune by the Irish government, that has so far been relatively pessimistic about the prospect of talks moving forward.

Indeed, we therefore cannot recall a time during the Brexit process of the last year at which the Irish government raised expectations to this extent."
The pound hasn't yet surged higher today following overnight gains as there are still a couple of imponderables at play i.e. will Northern Ireland be subject to a customs union or remain part of the single market, will the DUP support such a deal and can Johnson get enough lawmakers to back him on such a Brexit deal?

That said, the pathway for a move higher looks to be more attainable now and that may yet precipitate further gains in the pound back above 1.30 as the hurdles above start to get taken down one by one.

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