Are we set for a softer Brexit than initially anticipated?

As we move towards the end of 2016 we are no closer to understanding how we will facilitate our exit from the EU, when Article 50 is triggered (assuming the timeline remains the same) in March 2017. This market uncertainty has been a huge weight around the UK economies shoulders and as such the Pound has struggled to make sustainable improvement against other major currencies.

With the debate continuing to rumble on as to whether we are going to see a soft or hard Brexit, the market and investors are continuingly having to second guess the likely outcome. This means that any improvements for the Pound have been relatively short-lived and this was one of the main reasons I felt clients who were holding Sterling positions should be looking to take advantage of any short-term spikes.

The UK economy remains extremely fragile and whilst any information released by UK Prime Minister Theresa May regarding how we will facilitate our Brexit, is likely to help remove some of this uncertainty, so far we are yet to hear any real plan or long-term vision.

However, yesterday campaigners for an early Brexit have asked business groups across Europe to put pressure on their governments for a free trade agreement with Britain, warning that any trade barriers would have a “detrimental effect” on both economies. Whilst this will be possibly be seen as a desperate cry for help by some, it would indicate that many key Leave figureheads are angling for a softer Brexit than many first anticipated. This would leave doors to the EU open and whilst it may be something of a pipe dream, particularly when you listen to many of the previous comments made by EU leaders, it would seem to be the most viable option for the UK.

Former BoE Governor campaigns for harder Brexit

Former Bank of England (BoE) Governor Sir Mervyn King went against this grain over the Christmas period however, when he claimed that the UK should aim for a hard Brexit and “back itself” in the long-term.

It would appear that a softer Brexit could benefit Sterling as it will likely leave ties with the EU and therefore alleviate some of the pressure on the UK economy. A harder Brexit means we would have to renegotiate all trade deals with the EU and other nations, which could prove extremely complicated and would likely take years to put into place.

Therefore I would be looking at short-term opportunities for those clients holding Sterling, as a sustainable increase above 1.20 against the EUR and a move back towards 1.30 against the US Dollar seems a long way off under current market conditions.

If you do need to book a transfer, doing so ahead of the Supreme Court hearing and invocation of Article 50 may be worth considering. Call our team today if youd like to discuss your requirements on 01494 725 353 or email me here.


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