The British pound has surged higher after the big news out today that the EU and the UK have reached a tentative Brexit deal, which includes a solution to the touchy Irish border issue after nearly a year of negotiations.
Later this afternoon the motion is expected to go before UK Prime Minister Theresa Mays cabinet and the market is expecting some wild movements in the British pound once the cabinet decides.
If the cabinet approves the deal, the pound is likely to shoot past the $1.30 mark again and how high it will travel is anybody’s guess.
As is well known, May’s cabinet is only the first part of the approval process with the bigger hurdle being the House of Commons which many predict will be much more difficult as shown earlier today by some of her ministers who said they would not back the Brexit deal in its current form.
“We see potential for a rally of around 1% in the pound once a withdrawal deal is finalized by the EU and U.K. and then another, larger, rally perhaps 2-3% once that deal is ratified by parliament,” said Erik Nelson and economic analyst Abigail Kinnaman from Wells Fargo
“The period between the initial deal being reached and the subsequent ratification by parliament will likely be marked by ongoing volatility and uncertainty, which could see the pound retrench.” They added.
The analysts also noted that the pound could rack up losses of around 8 percent against its US counterpart should the deal fall through.