The pound last week lost all of its gains from Boris Johnson’s large majority in the general election on the 12th December. At the time of writing, the pound is 1.1742 against the euro, and 1.30174 against the dollar. This sees a sharp reverse of its 19-month highs just one week previously. We can attribute these fears to the possibility of a “no deal” Brexit being back on the table- despite Parliament passing the Prime Minister’s Brexit withdrawal agreement on Friday.
Risk of No Deal Back on the Table
It’s likely traders took action after an advance on the pound both before and immediately after the election, once the exit poll was published showing a strong Conservative majority. The pound has most likely weakened because Johnson has legislated that the transition period for leaving the EU will not be extended beyond December 2020.
On Friday, Parliament voted comfortably to back Boris Johnson’s Brexit deal, a stark contrast to Theresa May’s failed attempts earlier this year. This wasn’t a surprise, and didn’t impact the markets.
Moreover, on Friday we also learnt that the new Governor of the Bank of England will be Andrew Bailey. Replacing Mark Carney, Bailey has been Chief Executive of the Financial Conduct Authority, and is said to be highly respected in the field.
Quiet Week for Currencies
It’s likely the next week will be very quiet with the Christmas holidays. However, due later today is the US Durable Goods Order report, which publishes orders for manufactured goods. Also, last week President Trump became the third US president to be impeached, and we may see some headlines from the trade negotiations between the US and China.
Over here in the UK, the focus will largely be on the Brexit process. The Brexit legislation is set to go back to the House of Commons for another vote, but shouldn’t have any issues passing. It seems nothing can stop the UK leaving the EU by the 31st January. The next year will now be dominated by trade negotiations between the UK and the EU. The markets rejoiced at Johnson’s huge election victory a couple of weeks ago, but this relief has now turned to concern over the very limited time for trade negotiations (which usually take 20 years- not one).
And what of the Labour Party, you might ask? Jeremy Corbyn is still leader- so nothing changes there!
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