Skip to comments.Pound Sterling Erases Election Gains Over Euro and Dollar after 'No Deal' Brexit Cliff Edge Returns
Posted on 12/17/2019 8:57:01 PM PST by Cronos
The Pound erased its post-election gains over the Euro and Dollar Tuesday amid reports that Prime Minister Boris Johnson will create a new 'no deal' Brexit cliff edge, which has led some analysts to suggest a further correction is in store for the British currency.
Prime Minister Boris Johnson reportedly plans to enshrine the end of 2020 into law as the end of the next phase in the Brexit negotiations and the 'transition' period the UK will enter once the withdrawal agreement is ratified and the country formally leaves the EU on January 31.
ITV News reported late Monday that Johnson will legislate via an amendment to the Withdrawal Agreement Bill as soon as Friday to "legally prohibit" any further delay to the UK's departure from the bloc. A vote is expected as soon as the bill returns to parliament, likely on Friday, after a ceremony led by the Queen.
Michael Gove, a Conservative Party MP who serves as Chancellor of the Duchy of Lancaster, claimed Tuesday the decision would not lead to a 'no deal' Brexit. He told BBC Radio 5 Live that "deadlines concentrate minds," while EU negotiator Michel Barnier was reported to have said the EU will do its "maximum" to meet the deadline.
"This plays to the Labour leave voters, who probably couldnt stomach the idea of a two-year extension and paying into the EU budget without a say over policy. The move will clearly focus trade negotiators and it sounds like Downing Street is pushing for a Canada-style FTA on goods, with little care for services or regulatory alignment. The news probably cements the idea that 1.35 is a near term top for Cable and favours a correction to 1.3050/3150," says Chris Turner, head of FX strategy at ING.
Pound Sterling was quoted lower against all its major rivals in noon trading Tuesday as a result of the report, after having reached a post-referendum high against the Euro in the immediate aftermath of last week's election and a two year high relative to the Dollar.
"There was some speculation that Mr Johnson could soften his stance on Brexit given his 80-strong majority in Parliament after last weeks historic general election result. However, it seems a tougher attitude is being taken," says George Vessey, a currency strategist at Western Union. "This political development clearly highlights that Brexit is far from done and sterling is likely in for a bumpy ride if this hard-line rhetoric continues."
The Pound had rallied strongly against major rivals in recent weeks as markets saw the increasing prospect of a Conservative Party election victory not only seeing off the threat of an increasingly radical opposition party but also burying the threat of a 'no deal' Brexit for at least the foreseeable future.
Those gains are on the verge of melting away as markets respond to the renewed threat of an exit from the EU on World Trade Organization (WTO) terms but there are reasons for thinking that even if Johnson's amendment becomes law, the dreaded no deal exit will remain unlikely.
Given PM Johnsons majority and given this commitment to end transition at the end of 2020 was in the Tory election manifesto, this news is not a surprise but it highlights the likelihood of a barebones FTA deal that will fuel expectations of increased trade frictions in 2021, says Fritz Louw, a currency analyst at MUFG.
A 'no deal' Brexit could still be unlikely because exiting the EU on WTO terms would leave Johnson open to the charge of having broken up the United Kingdom, or something similarly controversial on the political side.
This is because the backstop would effectively condemn the Northern Irish province to a quasi form of sovereignty sharing with the EU unless and until unionist representatives in the province could persuade a sufficient number of their nationalist counterparts to vote to end the arrangements.
If and when the withdrawal agreement is ratified in the UK, Prime Minister Johnson will need to satisfy the EU that the open border on the island of Ireland will not compromise its single market when combined with divergence between UK and EU trade arrangements, customs processes and regulations. And if the PM is unable to that, Northern Ireland will be subjected to the 'backstop' in what would be a politically controversial development.
"GBP selling off today on a potential Dec 2020 hard Brexit. Personally I doubt a hard Brext & look for a deal in principle. Perhaps a phase 1 type deal as per US/china which will be agreed but not ratified or implemented & warranting an extension rather than a breakdown which in turn will keep a longer term bid tone to GBP in play," says Neil Jones, head of institutional FX sales at Mizuho Bank.
Analysts have said in recent weeks that Johnson's pledge to complete the trade negotiations without the need to extend the transition period beyond the end of 2020 will require the UK to make concessions to the EU during the negotiations. If the government agrees then a 'no deal' Brexit laced deadline that imposes a choice between an exit on WTO terms and a humiliating policy u-turn might seem in Westminster like it could shield Johnson and others from criticism of any extension to the transition period. In other words, it's possible the new 'no deal' cliff edge is a political gimmick that's intended mainly for consumption by the domestic audience, which would mean a WTO exit hasn't actually grown any more likely. However, analysts were already warning before the ITV report landed on the wires that Pound Sterling may have risen as high as it's likely to this side of the trade negotiations and that a correction is in store for the months ahead.
"The "Brexit irony" for the GBP is that signs of decisive leadership tend to weigh on the currency rather than support it," says Stephen Gallo, European head of FX strategy at BMO Capital Markets. "A large-scale UK/EU trade deal was never really going to be concluded within a calendar year anyway, but the fact that there will be no extension to the transition will raise the pressure on both sides to get a partial FTA inked quickly. If that's not possible, a rapid UK/US FTA might be even more vital for GBP."
Gallo forecasts the Pound-Dollar rate will trade around 1.30 in three months time and that it'll hit a nadir of 1.24 in six months, while the Pound-to-Euro rate is seen at 1.1820 in three months and 1.1481 in six months.
Didn’t take long for the Bojo Clown to create more of a Brexit mess.
Not sure what his goal is, since he already caved to the EU on Brexit.
Bojo could have had real undisputed Brexit on Halloween.
Now businesses and citizens have to live with more uncertainty.
Meanwhile Bojo is not fooling anyone in the EU because he already caved on October 31.
Leave means Leave.
Bojo could have left.
Interesting the Pound loses value on real no-deal Brexit but increases on UK Vassal State of the EU.
Guess which one will win in the end.
BoJo will end the UK’s membership of the community on 31 January 2020. That’s going to happen.
The trade deal will be Canada+ since the UK does not want free movement of Poles, Bulgarians and other Europeans to it, but wants free movement of goods and services.
This is the best possible deal that the UK could make for itself and it has done so
Funny. No one talks about a Norway Deal anymore. Or a “Norway +++ Deal” LoL!
The problem you have with Canada+ is that Canada is not in Europe and the EU being European based has a different criteria for deals with countries in Europe.
Otherwise Norway would be renegotiating for Canada+.
But good luck with that Canada+ thing.
Too bad UK didn’t do Real Brexit on Halloween.
That would have put both the EU and UK in the correct position to make deals and agreements.
BoJo will end the UK’s membership of the community on 31 January 2020. That’s going to happen.UK will be on the EU teat February 1. You can write that on your calendar.
I lived in the UK in the seventies. The old EEC was working perfectly as an organization that promoted free trade in Europe. It was brilliant.
The EEC morphed into the European Union. The European Union tried and most successfully took power over individual nations internal policies. Thus the revolt and Brexit. Once the UK is out of this other nations will follow.
The European Economic Community was brilliant. The European Union is a tragedy.
You're a fraud, always have been.
BTW, already pretending to be a soothsayer or just a naysayer with wishful thinking... and it's been less than a week.
Stick with what you know best, like liberals and socialists, be they in Germany, EU or California.
Maybe you've had too many soccer balls to your head.
The trade deal will be Canada+I find it funny how you expect Canada+ as if you are snapping your fingers at an outdoor cafe table on the Champs Elysee.
But in reality you wait forever and then the tiniest cup is placed in front of you for six euros.
But then I pointed out to you I am posting for real no deal Brexit instead of a vassal State deal...
Comeback when you are sober.
So I should wait until about May to make my next large purchase of British auto restoration parts?
I’ve done about a £1,500 this year for my Land Rover.
The EU will never negotiate a reasonable Brexit. Brussels will simply delay, deflect, and dissemble. They will play for time to hope the UK again loses its political nerve.
Johnson needs to declare Brexit January 1, and let the chips fall where they may. Then negotiate each item wanted with the EU after that.
This makes two of us.
maybe we should cut the guy some slack. after all, his country is run by an east german communist/globalist pig.
My opinion is that mid Feb should be fine. Beyond that it’s too difficult to predict
I keep asking you, PGR, what do YOU define as “a reasonable Brexit”?
You mean that the UK leaves members of the EU? Then that’s what is happening on January 31.
Boris already declared Brexit January 31 and he’s made the best withdrawal deal
Isn’t a “no deal” brexit the best for them?
Why should they pay a bunch of money to LEAVE the EU.
The UK couldnt leave in October because Johnsons opponents forced a delay via the Benn Act that they passed and he lacked the votes to get a Brexit deal through Parliament. His hands were effectively tied.
We had the election last week and the Tories won an 80 seat majority on a manifesto to get it done. It will now happen at the end of next month. Theres no longer any doubt the UK will be formally out of the EU on January 31 at 11:00 am.
Up in the air remains the nature of the post-Brexit relationship the UK will have with the EU and the heavy lifting part takes us to the end of next year:
Getting Brexit done is the easy part. The hard road still lies ahead in the future.
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