Further upside for sterling if Brexit deal is approved

If Boris Johnson’s Brexit deal is approved in Parliament soon, we expect the pound would rise from $1.29 now to about $1.35 and 10-year gilt yields would increase from 0.72% to around 0.90% by the end of the year. While a lot of good news is already baked in, which explains the recent leap in the pound and gilt yields, a deal is not fully priced in (the betting markets currently imply a 66% chance of a deal). That said, should Parliament block a deal and Brexit ends up being delayed again, the pound may slide back a bit. And if there’s a no deal on 31st October, which seems very unlikely now the UK has asked the EU to delay Brexit, we suspect the pound would fall to $1.15.