We hope you all had a good Christmas- it’s only been two days since the big event and the pound rallied slightly on Boxing Day. However, not enough to see it get to that 1.30 level. Most of the UK (and Europe, for that matter), is still closed so don’t expect to see too much movement. However, what did see sterling move was European Commissioner Frans Timmermans’ comments that “post-Brexit UK always welcome back in the EU”.
Overnight, the euro also had a bit of a bounce, at $1.11. However, for both the euro and the pound, there is no economic data to back this up. Across the pond in the United States, many have returned to work after Christmas. A small rally in the markets, no awful “Christmas gift” from North Korea, and some half decent jobless claims statistics have helped the dollar.
Busy Year Ahead
Whilst the pound has lost a lot of its election gains over the last few weeks, it’s important to note that it has hovered above 1.28 since UK Prime Minister Boris Johnson agreed a new Brexit Withdrawal Agreement with the EU in early October. This replaced Theresa May’s failed deal, which did not pass through Parliament, despite her trying three times to get it through.
Barely one week after Boris Johnson secured his 80-seat strong Conservative majority, he laid the Brexit Withdrawal Agreement before Parliament. It passed with flying colours, as you would expect, and he also laid out legislation to prevent the Brexit transition period being extended.
The timeline for the next year is now relatively straightforward- the UK is expected to leave the EU on 31st January 2020, entering a transitional period which will last roughly one year. During that one year, the UK will be negotiating trade deals with third countries, including the EU. What could make for shaky ground for sterling is whether or not the UK manages to conclude an acceptable trade deal with the EU during that time. Trade deals usually take over ten years to negotiate (here’s looking at you China-Australia Free Trade Agreement), and the UK barely has one to get everything in order.
However, from now until the 2nd January, we’ll probably only see currency fluctuations if politicians decide to interrupt everyone’s Brexit-free festive period and make comments which could be seen as (un)helpful. Our friends in the USA might see more movement in the dollar as the markets start up again, but let’s see.
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