EUR/GBP edges down below 0.8950 against a somewhat firmer pound

• EUR/GBP edges lower and reaches levels sub-0.8950.
• The pound regains lost ground amid higher deal hopes.
• Political uncertainty will weigh on the pound's imid-term outlook – Rabobank.

The euro has traded lower against the pound for the third consecutive day, extending its reversal from last week’s highs right above 0.9000, to session lows sub-0.8950. The pair has been weighed by a slightly stronger GBP amid higher hopes of a Brexit deal.

The pound ticks up on Brexit deal hopes

The British pound has appreciated across the board on Tuesday after the newspaper The Sun reported that UK chief negotiator, David Frost, said to Boris Johnson that he expects the trade deal to be signed by “early next week.”

Investor’s enthusiasm, however, has been cooled off by another report by Reuters assuring that Prime Minister Johnson has warned his top ministers the Brexit deal is far from certain. These comments have kept a rein on GBP longs.

EUR/GBP: Political uncertainty will be a constraint on the outlook for the pound – Rabobank

Looking beyond the Brexit, the Rabobank FX Analysis Team sees little hope on any relevant GBP rally in the mid-term: “The disarray within the Tory party suggests that Johnson may not hold on to his position for the duration of the current electoral term. This means that even when Brexit is in the rearview mirror, UK politics are still likely to be messy. We are forecasting EUR/GBP at 0.89 in a 3-month view and 0.88 in 6 months. However, the political outlook that is emerging in the UK suggests that these predictions may prove optimistic for the pound.”

Technical levels to watch