Brexit risk premium being priced back into GBP – ING

GBP has started feeling the Brexit heat yet gain and EUR/GBP broke above the 0.8700 level for the first time since mid-November as the Brexit risk premium is yet again being priced into GBP notes research team at ING.

Key Quotes

“This followed PM May’s comments over the weekend which increased the probability of hard Brexit. While the Brexit risk premium has started being priced back into GBP, it is nowhere near October levels (10% in the time based on our short term fair value model vs 1-2% currently). The rather contained Brexit risk premium at this point and the bumpy road ahead in terms of the negotiations about the terms of Brexit suggest more downside to GBP. We reiterate our 6-month forecast of EUR/GBP 0.90 and also see GBP/USD trading through the 1.20 level in coming months.”