No Deal Fears Hit Pound Again

Will the Pound to Euro Rate fall Into the 1.10’s soon?

Fears of a “no deal” Brexit are rife again as analysts at Danske Bank have said they are looking more cautiously at the pound’s outlook for 2020. Analysts are concerned that the UK could be heading towards another “no deal” Brexit at the end of the year, particularly after Boris Johnson has legislated for no further extensions to the Brexit deadline.

There are two key deadlines for 2020 relating to Brexit- the official leave date which marks the start of the transition period between the UK and the EU on 31st January, and the transition’s expiration date- due at the end of December 2020. If a free trade deal is not negotiated by December, the UK will either leave with no deal or the period could be extended.

Trade Talks Could Be Making of Sterling

Sterling rallied sharply in December following Prime Minister Boris Johnson’s sizeable win. Traders confidently assumed that having an 80-strong majority would mean the next stage of Brexit negotiations would run smoothly. Whilst this is true from the UK Parliament side, as the Prime Minister shouldn’t have too much of an issue passing legislation (much like his predecessor did), it still means that the trade deal will have to be negotiated in less than a year- quite a feat.

Johnson’s legislating for no extension to trade talks seems to spooked the markets, and possibly slowed down the pound’s rally from December. “No deal” Brexit fears are thought to have been priced into the pound earlier than anticipated.

Johnson’s Ambitions for EU and US Trade Deals

The actual trade deal talks should be starting this week, as the Prime Minister has a meeting with the European Commission at Downing Street tomorrow. The outcome of the talks could set the precedent for how negotiations will proceed, and any progress made is likely to be a boost for sterling. Stalled talks and disagreements could see the pound slump.

The talks are said to be broad, without going into specifics at this point. For that to happen, the EU 27 must give their mandate. This will probably happen in February, with the EU’s Chief Negotiator Michel Barnier able to start negotiating in March.

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