The fragility being felt by Sterling is due to a more transmissible strain of COVID-19. The televised COVID-19 updates have indicated that it could be as much as 70% more transmissible than the previous strain. The lockdown will no doubt have an impact on Britain’s economy and the length at which the lockdown lasts will dictate the damage caused.
The key reason for Sterling’s current vulnerability however is Brexit. If there is one thing investors do not react well to it is uncertainty and at present it is extremely difficult to call whether or not a deal is going to come to fruition.
The UK and EU has until 31st December to get a deal across the line, and there are still major points of contention to overcome. Talks were due to have ended this Sunday to have enough time to implement the deal. A UK government source has stated a deal will not be agreed unless there is a “substantial shift” on Brussels stance.
It has been said there is likely to be news on a deal before Christmas, although let us not forget how many extensions we have witnessed so far.
Liberal Democrats have been calling for an extension due to the current pandemic situation.
Labour leader, Keir Starmer said the "brinkmanship" from both sides must end and the UK must reach an agreement this week in the national interest.
"This is people's lives, people's jobs, people's businesses," he said. "They need a deal, expect a deal, and a deal is what must happen."
David McAllister, chairman of the European Parliament's Foreign Affairs Committee has said that European Parliament will not be able to grant consent to an agreement before the end of the year as a deal was not accepted on Sunday.
McAllister also provided a potential solution however, he said one option is, should the two sides reach a deal in the coming days, would be for the European Parliament to approve it in principle by 31 December before completing the formal ratification process early next year.
In such an event, short-term measures could potentially be put in place to minimise disruption to cross-channel trade before new legally-binding rules come into force.
It is increasingly likely that the UK will emerge from the transition period without a free trade agreement with the EU.
This will mean that, from 1 January, both sides will rely on World Trade Organization (WTO) rules to govern exports and imports. Tariffs could be introduced on goods being sold and bought, potentially affecting product prices.
The pound will be in for a rough ride and the only means of salvation seems to be Boris getting a deal in a very limited time. Those selling Sterling should keep a very close eyes on developments.
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