After years of waiting for Brexit, FX markets do not appear to be heavily positioned for the outcome, making a sharp reaction likely.
Sterling is up 0.4% this week and the dollar index =USD down 0.45%, while Morgan Stanley's FX Positioning tracker has GBP at neutral levels.
Thus with all the UK data, spread of COVID-19, lockdowns and vaccine hopes, sterling has been tracking the USD awaiting a firm Brexit decision.
Bank of England Deputy Governor Dave Ramsden said on Tuesday that markets are pricing a 20-30% chance of a no-deal Brexit nL9N2GY026.
Thus there should be a significant response to such an outcome - or a more modest move on a 'bare bones' deal.
A comprehensive post-Brexit deal seems unlikely, though still possible. The European Union will not retreat from their long-held insistence on a 'level playing field' on trade, while the current UK government shows no sign of backing down on 'sovereignty' issues nL1N2I51GY.
Technically key GBP/USD support levels on no-deal are the 1.2854 November low, then the 1.2676 September base.
The knee-jerk reaction to even a partial deal would be a test of the 1.3481 September high, and a comprehensive deal could see a return to the 2018 highs above 1.4000, unless the USD is rising broadly.
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