The US dollar will soon decline against the British pound and the euro area currency. This forecast was shared by analysts Morgan Stanley and told why under such circumstances, it is more profitable to sell one European currency against another.
The dollar will weaken due to the fact that the level of political uncertainty in the UK and the eurozone will decrease. The Brexit agreement is likely to be reached in November.
According to the American bank, the growth rate of sterling against the dollar will be higher than the rate of increase in the euro / dollar pair. In this regard, the cost of a pair of euro / pound will go down.
These expectations will help to benefit, Morgan Stanley advises selling the euro against the British pound. A short position in a pair of euro / pound in terms of risk looks most attractive because the volatility of this cross rate is weaker.
The above recommendation may not work in case of breakdown of the Brexit negotiations, experts warn. In this scenario, the risk premium in pounds will increase.
Note that on November 23, the main European officials intend to discuss the "divorce" of Great Britain with the EU. The Times report said that an agreement could be reached as early as next week. This suggests the existence of a draft treaty, which can be approved in the EU. In this case, good news will arrive on Tuesday or Wednesday.
It is possible that European officials will find the project unprofitable, so traders will be cautious.
As soon as the deal is announced, the sterling will show a rally. A pair of pound / dollar can soar to the mark of 1.34.
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