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The pound continued its upward surge on Thursday after a Brexit deal was agreed between the U.K. and the EU, but the currency could soar even higher.
Sterling GBPUSD, -0.2027% rose towards $1.29 after British Prime Minister Boris Johnson revealed a deal had been struck, which has since been confirmed by European Commission President Jean-Claude Juncker.
Analysts said the pound could soar above $1.30 and even to $1.35 if the deal is approved by the U.K. Parliament, which is expected to vote on the matter over the weekend.
The DUP—key group of Northern Ireland politicians—has said it does not support the deal, which has held back the pound’s rally, as it retreated to $1.2772.
Michael Brown, senior analyst at Caxton, told MarketWatch, the future direction of the pound “hinges” on whether the deal can be passed.
He said if the deal was approved by MPs the pound would climb significantly higher than $1.30, but if politicians block the agreement it could slide to $1.25 as uncertainty over an extension or election returns, while a no-deal scenario would send it to $1.20 or lower.
The currency fell below $1.21 to two-and-a-half-year lows in August after Johnson ramped up his no-deal Brexit rhetoric.
The market fears a no-deal Brexit, which the Bank of England said could bring the pound close to parity with the dollar.
Volatility has beset the pound in recent months, with traders reacting to headlines which either increase or decrease the likelihood of Britain leaving the EU without a deal.
See also: Stock futures point higher after U.K., EU strike tentative Brexit deal
However, a deal would provide the ultimate relief and bring about the end of years of uncertainty.
Nigel Green, chief executive of financial advisory group deVere, said: “If this deal is ratified, we can expect the pound to jump sharply. It is likely to hit at least $1.35 as the prospect of a no-deal, and/or months of further uncertainty ends.”
Sentiment towards U.K. stocks UKX, +0.89% will also rally, Green said, but exporters would be held back by the strong pound.
ING’s chief EMEA FX strategist Petr Krpata said the pound’s downside risk had “reduced sharply” but the upside, at least against the euro, was limited due to the uncertainty over the deal and its premium against the bloc’s currency.
