Pound will rise in price by 6%, a strong drop in the yen is unlikely

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Markets currently respond positively to news about upcoming trade negotiations. They like political events in the UK that exclude the "hard" Brexit at the end of October.

US and China

Chinese and American authorities once again agreed to sit at the negotiating table. Obviously, both sides understand that such an irrational trade war is a thing outside the modern global economy. It causes significant harm not only to the two giants, but to the world as a whole.

It seems that the US president will have to make some concessions to China. To procrastinate and look for ways for a better deal is becoming an extremely dangerous business. Time plays against the US. The Chinese have other trading partners. In addition, China's government's reliance on domestic consumption is paying off and bearing fruit. The huge domestic market is quite capable of supporting the national economy.

Upbeat traders began to dump defensive assets, the dollar in conjunction with the yen rose sharply. Negotiating news is certainly good. However, it would be nice to see progress. In this regard, the growth of quotations is likely to be limited to 107. Market participants can sell the USD/JPY pair to consolidate profits or create new short positions if the dollar reaches 107 yen, State Street believes.

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It is premature now to say that the situation in Hong Kong has improved. In addition, Britain is still in chaos due to Brexit.

Great Britain

Judging by recent events, Brexit may not take place without a deal, as Boris Johnson has lost control of the situation. Legislators have blocked the possibility of leaving the EU without a deal and the general election scenario. There is reason for optimism, especially for pound traders. The British currency is experiencing the best points against the dollar over the past 5 months. But it is not so simple. After losing two fights, the British prime minister may resort to other methods to conduct the election.

An attempt to circumvent a law requiring the approval of early elections by a majority vote is not ruled out. It is unlikely, but still, Johnson could declare a vote of no confidence in his government, and then urge his members of Parliament to abstain from voting.

If the bill to ban the "hard" Brexit is approved next week, the Labour Party will agree to the elections, which will be held October 15 or before the end of the year, according to J.P. Morgan

According to forecasts by Daiwa analysts, Johnson will achieve the repeal of the law on the prohibition of exit without a deal if he wins the election by October 31. It is worth noting that the Conservative Party leads in opinion polls.

However, elections can be held in November. With this scenario developing, the new British prime minister will not be able to fulfill his promise to the people of Britain - to leave the EU at the end of October "no matter what."

Goldman Sachs raised the estimate of the probability of a hard Brexit from 20% to 25%, and the assessment of its absence was lowered from 35% to 30%. The basic scenario remains, in which a close version of the existing deal will be approved by the House of Commons, bank analysts said.

Reuters poll

According to the results of the survey conducted before the vote on Tuesday, sterling should grow against the euro within a month after the exit with the conclusion of the deal. On Thursday, the EUR/GBP quotes were located at 89.5, and if the deal is signed, they will fall to 85–88.

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The British currency should recover after October 31 if it is possible to avoid an exit without a deal. The implementation of a scenario that minimizes the gap with the EU in economic terms is also positive.

If Johnson's strategy "shoots" and the "divorce proceedings" ends without a deal, the euro may well reach parity with the pound. In this case, the forecast for the pair is at 95-100. It is worth noting that the two currencies have never reached parity since the introduction of the euro in early 1999.

Over the next 6 months, sterling will reach $1.25 against the dollar, respondents said. In a year, the rate will rise to $1.30.

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