Pound sells off on Brexit woes
|The pound is down 2% against the U.S dollar in the past couple of days, on growing prospects that the United Kingdom will leave the European Union without a trade agreement.
Brexit talks are set to continue this week, with UK’s Prime Minister Boris Johnson playing hardball with European Officials. He has imposed a October 15 deadline, to which he plans to quit Brexit talks if no deal is reached.
The pounds have mostly forgotten Brexit, with the Coronavirus pandemic guiding everyone’s attention away from the non-completion of Brexit.
Seema Shah, Portfolio manager at Principal Global Investors, stated that headlines over the weekend were a “timely reminder that, while the markets have been distracted by the UK’s struggle to rejuvenate the economy, Brexit negotiations have quietly been going nowhere.”
The main issues include competition, fisheries, and solving disputes.
UK government undermining Brexit, pushing pound lower
Further downwards pressure came from the revelation of the UK government is planning to release legislation that would override critical parts of the withdrawal agreement – notably the deal that would undermine the agreement that Boris Johnson signed last year to avoid a return to a hard border.
The pound has been rallying since its March lows, up 14.13%. However, it has underperformed compared to its peers. For example, the Australian dollar has rallied 31% since its March lows.
The main issue for the pound comes from its appreciation, not discounting Brexit talks. As headlines start to creep up about Brexit near Boris’ October 15 date, the pound’s volatility will increase. Petr Krapta, a currency strategist at ING bank, stated that “the Brexit head is back on and sterling is, in our view, unprepared.” This comes at a time when the UK’s grip on the Coronavirus continues to slip, with daily cases spiking, recording the highest number of daily Coronavirus cases since May.
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