GBP/USD to be unable to break above 1.35 even with a Brexit deal – MUFG

Hopes for a Brexit breakthrough keep the pound afloat. Cable rebounded from an intra-day low yesterday of 1.3188 back to within a touching distance of the 1.3500-level, but it has since fallen back towards the 1.3400-level. In any case, GBP/USD will struggle to surpass the 1.3500 mark even if a Brexit deal is reached, according to economists at MUFG Bank.

Key quotes

“The trigger for the pound reversal were reports that the EU and UK are moving towards a compromise on fisheries in an attempt to unblock a Brexit trade deal. The signs of potential compromise on fisheries have created fresh optimism that a last-minute deal can still be struck before year-end.”

“We continue to believe that a last-minute trade deal will be reached but the risk of a no-deal is now elevated with time fast running out to reach compromises.”

“Even if a trade is reached, upside potential for the pound will now be dampened by recent negative COVID-19 developments in the UK. Economic disruption from the new tougher Tier 4 restrictions in response to the new covid strain has been reinforced by barriers put in place by other countries in an attempt to stop the spread. According to the BBC, more than 40 countries have banned UK arrivals, and France has shut its border with the UK for 48 hours. The EU is expected to announce a coordinated response today. In lights of these developments, GBP/USD will find it more of a struggle to rise beyond the 1.3500-level if a deal is reached before year-end.”