Brexit negotiations continued over the summer and last week negotiations ended without any major progress. Economists at Danske Bank lowered the odds of a deal to 60% from 65%, while the odds of no deal dropped from 35% to 40%. EUR / GBP will soar to 0.97 in a no-deal scenario.
“We have reduced our probability of a deal from 65% to 60%. The reason is that the low probability of a deal over the summer has not happened. The probability of an overall deal is low (5%) and we expect a simple free trade agreement covering goods (55%). “
“We now think the probability of a no-deal Brexit is 40% (vs. 35%). With the UK rejecting the extension of the transition period, the EU and UK will negotiate on WTO terms on January 1, 2021 in the event of no deal. It also means that, in our opinion, companies must continue to prepare for the worst. “
“The next round of negotiations begins on September 7 and the negotiation rounds are scheduled until October 2, before the EU summit on October 15 and 16, where the ambition (hope?) Is that the leaders of the EU can say yes to an agreement. However, we believe both sides may require “overtime” and a deal is more likely in early November. “
“We believe the EUR / GBP will continue to trade around 0.90 as it has been doing for some time now. If the negotiations are on the verge of collapsing, we could see EUR / GBP move up to around 0.92. We believe the strength of the GBP is on the cards when a deal is in sight and the EUR / GBP is 0.88 in three months and 0.86 in six to twelve months. ”
“If we are wrong and there is no deal, we believe EUR / GBP will rise significantly but remain below parity. We reduce the EUR / GBP to 0.97 in this scenario. “