Brexit deal to be done, or going, going, gone?
25 November, 2020
This week on the markets has seemed stagnant with rates trading within very tight ranges for both main pairings of GBP/EUR and GBP/USD. However far from the markets being stagnant in reality they in a state of deadlock – awaiting the impending outcome of the Brexit negotiations with pressure continuing to mount as the clock ticks down to the approaching deadline. One way or another in the coming weeks we will see rates break out of the current tight range. And when they do break out expect them to break quickly.
The big question of course is….Will we get a deal or not?
Talks were put on pause last week following announcement that one of Michel Barnier’s EU negotiation team had tested positive for Coronavirus. With 5 weeks to go until the UK officially leaves the single market and customs union this has certainly thrown a spanner in the works. As a result French President Macron has now called on the European Commission to ramp up arrangements in preparation for a No-deal. If we do leave with No-deal this would likely have a hugely negative impact on exchange rates, seeing rates for buying currencies from the Pound tumble.
And in the absence of a deal and as we creep closer to the 31st we will likely see downside pressure on Sterling as the markets starts to reflect increasing concern. Currently though it seems markets are remaining optimistic that a deal will be struck with GBP>EUR rates close to a 6 month high and GBP>USD rates close to the highest they have been in 12 months. Positive news of the Oxford developed vaccine this week has certainly helped provide GBP with some support at these levels. Undoubtedly this news is hugely positive as it provides some light at the end of the tunnel for a lifting of lockdowns and Economic revival in the UK.
Without doubt though it is the Brexit deal outcome that will be the main driver for GBP exchange rates. And whilst French President Macron is pessimistic, the Irish PM Michael Martin remains “hopeful” that by the End of this week we could see an outline of a deal. And with some media reports suggesting that the issue of fishing rights is close to resolve this may well be the case.
So, what does this all mean for exchange rates?
The simple answer is that there is no simple answer. Should a deal be announced the expectation is GBP rates would rally almost immediately by 2/3% and thereafter we would see a slow increase as confidence resumes in GBP. But the Devil may be in the detail here. Whilst a deal in itself might seem good, of course it needs to be a good-deal for the markets to react positively. And on the flip-side if we see no-deal the market is expected to drop hard and fast. But it is possible we may see a small dip followed by a resurgence in GBP rates as at least the rules of engagement are defined and certainty resumes- Something which has been missing for some time now.
What we do know is either way the pressure has been building up for some time now, and the market will move VERY quickly when it does. So speak to your Broker today and before it may be too late – Why take what could be a very costly risk? You may be confident of the outcome and have more of a gambling mentality but it would be prudent to at least discuss some of the options we offer to reduce the risk – forward contracts, stop/limit orders and cost averaging trading. Give us a call today for some friendly and professional guidance on how to get the most out of your transfer during these increasingly uncertain times.
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