- GBP takes 2nd drubbing amid scramble to price Brexit uncertainty.

- As trade prospects appear to ebb, with leaders warning of 'no deal'.

- GBP less pessimistic as 1.31 reflects view of 50/50 odds for a deal.

- 'No deal' downside brings 1.25 as upside offers view of 1.36-to-1.37.

File image of Prime Minister Boris Johnson. Picture by Andrew Parsons / No 10 Downing Street

GBP/USD spot rate at time of writing: 1.3167Bank transfer rate (indicative guide): 1.2806-1.2828FX specialist providers (indicative guide): 1.2969-1.3075More information on FX specialist rates hereSterling suffered a second consecutive drubbing on Friday as the market scrambled to price-in the seemingly diminishing prospects of a Brexit trade agreement, taking the Pound-Dollar exchange rate back toward the midpoint of a six month range that reflects little better than 50/50 odds for a deal.

The Pound was the worst performer again having sustained heavy losses against all major counterparts, exceeding -1% in some cases, after Prime Minister Boris Johnson and European Commission chief Ursula Von Der Leyen both warned that a 'no deal' Brexit is now likely.

Those possible premonitions came after the pair were unable on Wednesday to settle differences over key issues that have so far prevented a trade agreement and have prompted losses for a Pound which had until last Thursday implied that an agreement was all but ratified.

"USD has recovered some of its recent losses early during the European session, largely against GBP, as Brexit concerns weigh on risk sentiment," says Elias Haddad, a senior strategist at Commonwealth Bank of Australia. "Regardless, the likelihood of additional US fiscal and monetary accommodation before year‑end will continue to support financial market risk sentiment and undermine USD. US policymakers are still trying to hammer out a second coronavirus relief package. Despite persistent deadlock in talks, there is optimism a deal is within reach," Haddad writes in a briefing Friday.

Above: Pound Sterling performance against major currencies on Friday. Source: Pound Sterling Live.

"Positioning analysis shows GBP is now in downtrends for five of the GBP/G10 pairs, with potential to enter into more downtrends against USD and JPY," says Vadim Iaralov, a quantitative strategist at BofA Global Research. "GBPAUD's downtrend continuation signal is the most supported by positioning analysis, and it is our preferred pair for lower GBP in this coming week. The short-dated risk reversal in GBPAUD has collapsed, favoring puts, suggesting bearish risk-reward for spot."

Boris Johnson reiterated again on Friday that "From where I stand now it is looking very, very likely that we will have a no-deal."

This was after Dutch Prime Minister Mark Rutte was quoted saying the EU is willing to compromise in its demands for a so-called level playing field as well as in relations for ambitions around access to British fisheries following the UK's departure from the bloc, but that "there is a limit" to how far national leaders and EU officials in Brussels are prepared to go.

"We are it seems hurtling toward a no-deal outcome," says Derek Halpenny, head of research, global markets EMEA and internaitonal securities at MUFG. "What has grabbed our attention this morning is the contingency planning details announced by the EU. These plans are in order to minimise the level of disruption in a no-deal scenario. Of course the UK would need to agree to these proposals as well and given continued access to fishing waters is one the proposals that can’t be guaranteed."

Above: Brussels' 'no deal' Brexit contingency proposals.

Halpenny and the MUFG team previously warned that failure of the trade talks could drag the Pound-to-Dollar exchange rate down to 1.25 assuming that so-called contigency measures could be put in place. These contingencies would see both sides refrain from preventing air travel across each others' territories and freight from moving back and forth, although even they may be less likely now the EU has demanded a British capitulation on a key issue in the trade talks as the price of such arrangements.

MUFG and a range of other firms have generally guided or even forecast the Pound-to-Dollar rate to trade somewhere between 1.36 and 1.38 in the event that a Brexit trade deal is achieved, which means that at Friday's 1.31 level, Sterling was reflecting around a 50/50 probability of an agreement eventually being reached. That's if 1.25 can be taken as its likely 'no deal' resting place, although all have warned that even lower levels could materialise, which may be more likely if contingency plans aren't agreed.

"There is still hope for an agreement, after which the pound should trade stronger. But even in this most favorable case, we would not expect a long-term appreciation trend, as uncertainty about the consequences are likely to remain high," says Thu Lan Nguyen, an analyst at Commerzbank, who forecasts a Pound-Dollar rate of 1.39 by March.

Above: Pound-to-Dollar rate nears 55-day moving-average as Pound-to-Euro rate (black line) plummets.

"Without an agreement, trade would be conducted according to WTO rules from next year, which would be a bitter blow for both sides in real economic terms, but above all for the British economy, for which the EU is by far the larger trading partner than the other way around," Nguyen says.

Nguyen and the Commerzbank team forecast the Pound will top out around 1.40 in mid 2021, although this assumes a deal is reached either ahead the December 31 expiry of the Brexit transition period or soon after. However and in the meantime, technical analysis from the bank suggests Sterling could find support around 1.3129 ahead of the weekend, but that it would be curtains for a still-bullish outlook on the charts if the Pound sustains a daily close below there.

"A further complication is that - with the USD and the GBP both quite weak and trade barriers set to rise - European exporters will face significant margin pressure and limited exchange rate flexibility. All things equal, EURUSD is probably setting itself up for a slow re-test of 1.20 over the coming days depending on how Brexit unfolds," says Stephen Gallo, European head of FX strategy at BMO Capital Markets. "Whereas investors had been trading broad based fluctuations in risk appetite and general USD weakness, much of the focus and energy in the FX market will be devoted to GBP/USD in the days ahead. We look for the relationship between the currency pair and risk appetite to tighten up from here and turn more positive. In fact, the currency may start to lead equities rather than the other way around."

Above: EUR/USD rises at monthly intervals, with EUR/GBP (black) and EUR/CNH (orange). All upward influences on the trade-weighted Euro, which reduce long-elusive inflation pressures and crimp European export competitiveness.