The pound could be in for rough ride short to medium term. It is not only the pandemic it has to contend with but also the small matter of Brexit. Boris Johnson has now made it clear there will be no extension in negotiations beyond 2020. There is only the option to call for an extension until the end of June.
This is a risky game considering there are still two major points of contention between the two sides; the Irish border and fisheries. There has been instances where positive progress has been reported in the press only to be quashed shortly afterwards and these have had bearing on the currency market.
It seems as though Barnier has a mandate and he intends to stick to it and he does not seem prepared to make any concessions to get a deal over the line. Boris could be attempting to use the time constraint to add pressure on Brussels, but this does no favours for the value of the pound.
Let us not forget, Teresa May had several years to get a deal done, many considered her negotiating style and stance weak, could it be the case that Brussels are simply not prepared to play ball?
It could be the case that it is not in the interest of the EU to give Britain a favourable deal. It could be an attempt to warn other members of the bloc from following suit.
We must remember we are in the midst of a pandemic and it is taking its toll on economies on a global scale. The UK is set to be one of the worst hit as demonstrated by some very poor Gross Domestic Product (GDP) figures released last week. Sterling is not considered to be the destination of choice in times of global economic uncertainty due to the huge imbalance in imports and exports and when you throw Brexit into the mixer Sterling’s appeal is even less.
There has been slight gains for Sterling as investors gain more confidence in riskier currencies with an easing of lock down restrictions to varying degrees across the globe, but there has been no real significant movements in the pound’s favour. The US dollar is losing some ground as investors leave for riskier currencies such as the Australian dollar and New Zealand dollar. Austria and New Zealand’s economies should fare well due to there impressive handling of the COVID-19 pandemic.
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