Pound Ends Rocky Year on Mixed Feelings

Euro to Pound Rallies Despite Forecast Record Contraction

It’s been a bit of a tumultuous year for the British pound, as it enters its final day on 1.3140 against the dollar and 1.1722 against the euro at the time of writing. It could really go either way in 2020, but let’s hope there are fewer political shocks (when we say shocks we mean elections), and just focus on Brexit.

Brexit, Brexit and Brexit

Brexit had lots of false starts in 2019, but hopefully the path for 2020 will be clearer. The UK is set to leave the EU on 31st January 2020 and enter into a transition period. Prime Minister Boris Johnson has legislated that this transition period must end by December 2020.

So, if the pound is to fluctuate and respond to political events, it probably won’t be thanks to Parliament. The Conservative Party won a majority of 80 seats in the 12th December election, allowing Boris Johnson to do what Theresa May failed to do on three occasions- pass a Brexit Withdrawal Agreement which will allow the UK to leave the EU. Both the UK and the EU have pledged to try negotiate a trade deal before the end of 2020. However, trade deals take years to negotiate, and EU Commissioner Ursula von der Leyen has already said that it might be necessary to extend the transition period. A decision on whether or not this will be required will probably be made by summer 2020.

Unfortunately, there is still the risk of a “no deal” Brexit. If we get to summer and neither a trade deal nor an extension looks likely, then expect sterling to depreciate somewhat.

Euro Could Flourish Against the Dollar in 2020

However, on the other side of the Atlantic the dollar will be preparing for similar ups and downs as we get to the election on 3rd November. The Democrats still do not have a candidate, and it looks like President Trump’s trade deal with China might progress which is giving the dollar a bit of a boost.

This is all looking mixed for the euro, which has traditionally done well when the dollar has had bad days. However, some forget that Brexit will also have an impact on the euro, with a “no deal” Brexit potentially causing it to lose around 12% of its value.

Here’s hoping for a prosperous and uneventful 2020 (which we doubt!).

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