GBP: Is the recent rally reflecting optimism over a 'soft' Brexit - ING

Viraj Patel, Foreign Exchange Strategist at ING, suggests that the recent rally of GBPUSD is reflecting optimism over a 'soft' Brexit for sure, while they agree that there has been a positive re-assessment of the Brexit tail risks since last December’s Divorce Deal – we shouldn’t get carried away at overstating this effect on recent currency moves.

Key Quotes

“GBP/USD’s rally above 1.40 earlier this year had little to do with anything GBP-specific; we point to the fact that the 6-month correlation between GBP/USD and EUR/USD picking up to its highest since the Brexit referendum (~0.55) – which suggests that this has predominantly been a weak USD story (and therefore little evidence to cite GBP’s rally as being Brexit or UK-specific). If anything, the reduction in Brexit tail risks has merely allowed GBP to participate in the upside amid a weakening USD environment.”