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Wholesale Banking

Sterling unprepared as UK-EU trade deal hopes fade

The chances of a UK-EU trade deal being struck are now 50:50 at best, given the events of the past few days. The very limited risk premium factored into EUR/GBP at the moment suggests further downside lies ahead for the pound.

The chances of a deal have receded

The UK government’s unveiling of its Internal Markets Bill marks the start of what promises to be another messy period in the Brexit saga. Provisions contained within the bill to effectively disregard parts of the withdrawal agreement have undoubtedly reduced the chances of a deal, and we think at best the odds of a free-trade agreement being reached this year are now 50:50. For sterling, this is likely to mean further downside ahead. No trade deal could see EUR/GBP trade above this year's high of 0.95.

What follows is an explainer of what's been happening, and what it means for the chances of a deal and the pound.

Read the full article on Think