Following the recent deal between the UK and the European Union to move onto the next phase of Brexit negotiations, financial experts are trying to predict what the new political landscape means for the future of Sterling.
Now Dutch lender ING is predicting what 2018 has in store for Sterling as Brexit talks enter a new stage. In March, ING unveiled a ‘Prisoner’s Dilemma’ chart (available here) showing possible outcomes for the Pound, and now the chart has been updated.
ING’s Foreign Exchange Strategist Viraj Patel explained shortly before the recent deal was announced:
“Our game theory application to Brexit negotiations is proving a handy framework for analysing the political risks to GBP. While much of 2017 has been marred by UK and EU politicians playing ‘hardball’ with one another, it appears as though the tide may be turning in a constructive direction.
Politicians moving away from seeking to protect their own domestic interest (the Prisoner’s Dilemma scenario) – and slowly moving towards a mutual agreement – is unambiguously positive for GBP. For example, while agreeing a ‘divorce bill’ has little economic significance for the price of GBP, the political significance of progress in Brexit talks is quite profound – not least as it reduces the tail risk of a ‘No Deal’ scenario and a complete breakdown in negotiations.”
See the new chart below: