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The British Pound could already be at its Brexit deal 'fair value' against the Dollar but could still manage to climb another 200 pips against the Euro, according to new research that shows relatively limited potential upside on any Brexit talks breakthrough.

Analysts at independent research house Capital Economics say the Pound might already be close to absorbing its fair share of good news, an observation that could leave those looking for a markedly stronger currency disappointed.

"The recent swings in Sterling triggered by shifts in sentiment towards the chances of a Brexit deal have left little room for the Pound to appreciate if there's a deal," says Paul Dales, Chief UK Economist at Capital Economics.

Indeed, there is "plenty of room to depreciate if there's a no deal," says Dales.

The Pound has risen sharply over the past 48 hours as the pendulum of sentiment swings back towards favouring a deal to be reached before year-end.

The rally has allowed Sterling to recover much of the ground lost in the week prior, when the pendulum swung in the opposite direction amidst signs that the two sides had reached an insurmountable impasse over fishing rights and level playing field rules.

"The moves in Sterling in response to the swings in the odds of a no deal Brexit have been small in comparison to other Brexit-related falls over the past few years. Despite the implied probability of a no deal rising to about 45% in early December, Sterling only fell by 1.4% last week to a low of $1.32. And if anything, in the week to 13th December, investors were placing more bets on Sterling rising than falling," says Dales.

Betting odds markets are are now placing a ~80% chance that a deal gets done, an improvement that has aided the Pound-to-Euro exchange rate back to 1.11 and the Pound-to-Dollar exchange rate to two-year highs at 1.3545.

Should a deal be agreed, Capital Economics judge a fair price for Pound-Dollar at 1.35 and Pound-Euro at 1.13.

Media reports concerning the status of talks at the time of writing on Thursday suggest that the two sides have more or less squared away the issue of level playing field provisions, leaving a final compromise to be made on fisheries.

The BBC's Europe Editor Katya Adler reports that a key problem negotiators now face is divergence amongst EU members, with France being pitted against other coastal states such s the Netherlands, Denmark and Spain.

The complication could leave EU Chief Negotiator with little alternative other than making a final call on the EU's position to try and secure a deal.

Regardless, there remains the prospect for talks to fail.

In such an instance Capital Economics see the Pound-Dollar rate falling to 1.15, or even 1.10 on an acrimonious fallout.

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