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Pound Rallies as Risk Assets Jump, but Brexit Worries Will Resurface, JPM Says

Published 07/20/2020, 01:55 PM
Updated 07/20/2020, 02:05 PM
© Reuters.
GBP/USD
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By Yasin

Investing.com – The pound racked up gains against the dollar on Monday and continued to ride on the coattails of rising U.S. stocks, but Brexit concerns will soon return as the main driver of sterling, JPMorgan said.

GBP/USD rose 0.67% to $1.2649.

Cable has found its footing since falling three weeks in a row since June 21 with the currency pair, trading as a risk asset, rising in tandem with U.S. equities. This correlation is understandable as the U.K. is "the largest capital importer within G10," JPMorgan said.

But as equities move into range-bound trading, and the Brexit process comes to a head in the next few months, it is likely to "expect that GBP will become rather less dependent on general risk sentiment, and hence start to decouple from other high-beta currencies," the bank added.

The latest jump in the pound comes even as further reports suggest that the risk of the U.K. leaving the European Union without a deal continues to gather pace.

As the UK and EU resumed talks on a deal in London on Monday, former President of the EU Commission Jean-Claude Juncker reportedly claimed that U.K. Prime Minister Boris Johnson was "purposefully" pushing for a no deal Brexit.

The pound has also been bolstered by ongoing signs that demand for the dollar remains in the doldrums.

Net shorts (bearish positions) on the dollar climbed 9% in the week ended 14 July, the highest level in the last three weeks, according to Commodity Futures Trading Commission (CFTC) data.

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