The pound may have recovered from its post-Brexit lows, but it's set to face another round of Brexit heat, analysts said.
In the wake of the U.K.'s late June vote to exit the European Union (EU), the pound tumbled to as low as $1.1450 in an October flash crash.
But the currency recovered from those 30-year lows in the wake of Donald Trump's surprise U.S. election win, reaching levels above $1.27 in early December. That was up from levels under $1.24 before the election results, potentially on expectations that the president-elect could pursue a "fast-track" trade deal with the U.K.
On Thursday at 3:23 p.m. HK/SIN, the pound was fetching $1.2361.
But analysts at Nomura said in a note Wednesday that even current levels might be overly optimistic, noting that it's very difficult to determine what the market is pricing in, especially when no one yet knows what type of agreement the U.K. government will secure with the EU. Markets are speculating on a "hard, soft, flexi and transitional Brexit," Nomura notes.
Among the issues which will determine whether the Brexit is hard, soft or in between will be whether the U.K. exits the EU's single market, whether free movement of people will be allowed and whether the U.K.'s financial players will retain "passporting rights" with the continent.
Nomura noted that U.K. Prime Minister Theresa May was expected to issue a Brexit plan in a speech in the new year, although even that was expected to lack details.
"Our concern is that the market is too complacent and optimistic in its Brexit pricing as U.K. asset pricing seems to suggest the market is moving away from a hard Brexit pricing, with little concrete reason," Nomura said. "It may be because market participants that were eligible to vote probably voted overwhelmingly to remain (in view of London's results)."