(Bloomberg) — Foreign money strategists are delivering a actuality examine on how far the pound rally can go if the U.Okay. and European Union lastly clinch an historic commerce deal.The overall consensus is that a lot of the optimism is already priced in, with the forex up greater than 9% for the reason that finish of June whereas the relative price of hedging pound weak point over the following 12 months at its lowest since March. The price of insuring in opposition to swings in sterling over the following month fell to its lowest since September on Thursday.Traders see limitations of any incoming accord and are looking forward to the prospect of additional coronavirus restrictions and the U.Okay.’s bleak financial outlook. The pound traded 0.6% larger at round $1.3580 at 1:15 p.m. in London.“The announcement of a Brexit commerce settlement needs to be quickly bullish for sterling however we expect that a lot of the excellent news is within the value and counsel taking revenue round $1.36,” mentioned Sheena Shah, forex strategist at Morgan Stanley. “The various uncertainties for the pound — native and international — lead us to count on it to be an underperformer for many of 2021.”Any deal would conclude greater than 4 years of fractious negotiations for the reason that U.Okay.’s referendum on EU membership, organising a brand new period of commerce relations between Britain and the bloc. Uncertainty over the longer term and the anticipated financial injury from Brexit has held the pound captive under its pre-referendum vary.But the pact will solely go to this point. “New customs preparations will introduce friction and extra price for enterprise,” mentioned Jeremy Stretch, the pinnacle of Group-of-10 forex analysis at Canadian Imperial Financial institution of Commerce in London, who says a lot of the excellent news is already mirrored within the pound. “The service sector, together with monetary providers, has primarily been ignored by the U.Okay. authorities and therefore is outdoors the deal.”The pound will most likely advance to $1.37 if the U.Okay. and European Union finalize a commerce deal on Christmas Eve, in response to Credit score Agricole SA. Whereas that’s the best stage since Might 2018, it’s underneath a 1% achieve from Thursday’s peak of $1.3619. CIBC says sterling might contact $1.3715, though it recommends promoting the rally.“The upside is fairly marginal now,” mentioned Adam Cole, RBC Europe Ltd.‘s head of forex technique, who says the pound will likely be overshooting if it exceeds $1.36. “Taking the bookies’ quotes as a proxy, the chance of a deal rose from 50% on the weekend to 90% yesterday, so I feel the repricing is essentially accomplished.”Low LiquidityThe caveat is that with liquidity diminishing in the course of the Christmas interval, sterling’s response to a call over commerce could also be extra unstable. Regardless of the vacation lull, demand for the pound from institutional traders was seen in the course of the Asia session, in response to a Europe-based dealer who requested to not be recognized as a result of he isn’t licensed to talk publicly.Manuel Oliveri, a foreign-exchange strategist at Credit score Agricole, mentioned participation could also be low as a result of many purchasers have already closed their books for the 12 months. It’s one purpose why an accord might ship the pound hovering as a lot as 3%, earlier than ending the day up 2%, Bob Stoutjesdijk, a Rotterdam-based fund supervisor at Robeco Institutional Asset Administration, mentioned on Wednesday.For extra articles like this, please go to us at bloomberg.comSubscribe now to remain forward with probably the most trusted enterprise information supply.©2020 Bloomberg L.P.