Sterling is currently in a very vulnerable position. In times of global economic uncertainty it is not the destination of choice for investors. This is due to the huge imbalance between imports and exports, it is not considered a safe-haven currency.
The UK has now officially entered a technical recession caused by the pandemic, but it seems the key factor on the pounds value is Brexit. There are still major points of contention and there seems to be little change in stance from either side, both sticking to their guns. Fisheries seems to be a major stumbling block and according to latest reports it could be the case that the EU feel the UK is now set to become desperate due to the very limited time scale to get a deal over the line.
Johnson has stated there will be no extension in talks past 2020. Although this may fall in line with the popular opinion that we need to play hard ball and get a resolution it is a dangerous game. A deal must be agreed in October in order to have enough time for implementation.
You have to ask yourself is it in the EU’s best interest to give Britain a favourable deal?
If the UK were to leave the bloc with a decent deal what is to stop other member nations following suit?
Italy have been vocal about their unhappiness with funding dictated from Brussels. Could they be the next to leave?
Michel Barnier could well have a mandate that he intends to stick to, which is not good news for Britain.
Brexit negotiations have recommenced this week. UK chief Brexit negotiator, David Frost is being joined by 50 civil servants for the trip as Britain prepares to stand firm on its red lines set out by Boris Johnson, especially over EU access to British fishing waters.
Brussels seem confident that the UK will be forced to make concessions due to the time constraint.
One EU official, who is closely involved in the post-Brexit trade negotiations spoke to politico and said the following, “The UK desperately needs this deal. If the clock is ticking, reality will start to sink in in London."
"The UK might not always have behaved rationally in its negotiations with Brussels, but surely the pandemic and the lack of trade alternatives must lead to some reason in London.”
A UK official had the following retort "a bit of a stretch" to claim Britain will rush to do a deal with the bloc because its other trade negotiations have stalled.
Be wary of holding out for any significant gains for Sterling while both sides remain at stalemate. If we look at GBP/EUR for example, we have not breached 1.12 since 9th June. Until we see clarity on the Brexit situation Sterling is destined to remain fragile.
Today we will see an account released of the latest European Central Bank (ECB) meeting. This is keenly watched by investors as any change in monetary policy can impact the currency in question.
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