The formal start of Brexit negotiations on Monday may prove more of a catalyst for the pound than an inconclusive general election, a surprise hawkish shift by Bank of England officials and a spate of disappointing economic data.
Despite the raft of surprises to hit Sterling this month, it’s set to record its tightest monthly range versus the euro since 2014. That may change as, almost one year since Britain voted to leave the European Union, U.K. Brexit Secretary David Davis and his European counterpart Michel Barnier open negotiations. The talks started with a “positive and constructive” tone, Davis said on Monday.
The two sides will hammer out how talks will be structured, whether there would be a transitional phase to help businesses to re-adjust to new rules and what the divorce would mean for rights of EU citizens living in the U.K. and Britons living on the continent.
Long 1Y GBPUSD 1.42 put vs 1.6175 call (1Y risk reversal).
Options traders are more bearish on the pound than any other Group-of-10 currency over the next three months, according to risk-reversal data. The case for turning positive on the pound still eludes most market participants. Robeco Investment Solutions’ portfolio manager Jeroen Blokland said he has initiated a long position in the euro against sterling as “there is a chance Brexit could turn ugly.”


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