MPs returned to Parliament yesterday and debated Boris Johnson’s Withdrawal Agreement. The debate is set to last the rest of the week but should go smoother than it did under Theresa May. Both the pound and the euro will prove to be volatile and react to political developments, as preliminary talks between the UK and the EU will take place between EU Commissioner Ursula von der Leyen and Boris Johnson. The dollar has also moved positively in reaction to the tensions in the Middle East, with the pound/dollar exchange rate at 1.3146 and the pound/euro rate is 1.1799 at the time of writing.
Pound Grows Ahead of Trade Talks
All eyes are on Downing Street today as the two UK and EU leaders meet in what will probably be the first of many intense discussions on trade negotiations. Ahead of the Johnson/von der Leyen meeting, the pound is doing well, but don’t necessarily expect this to last. If any details are leaked, especially ones which hint at lack of progress, we can expect to see the pound reverse some of those gains made this week.
Since the election last month, the pound has been sold off somewhat dramatically, mostly thanks to the Prime Minister’s hard stance on Brexit. Analysts are concerned that the one-year window for trade negotiations between the UK and the EU is too short. Von der Leyen made comments over the Christmas period indicating that she would be open to extending the transition period if it meant a trade deal could be achieved.
However, Boris Johnson has firmly stated that from the UK side, that is not an option. If the two fail to strike a deal, this means that they would revert to World Trade Organisation rules when importing and exporting, resulting in tariffs on goods and completely different regulatory systems for the likes of finance, chemicals, medicine and more. If this were to happen, the pound and the euro could drop.
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