Pound Stumbles on Renewed Brexit Risks
The British pound fell to the red territory on Wednesday, as the possibility for an orderly Brexit dimmed once again. This prompted forex traders to abandon the currency.
The sterling shed 0.1% to $1.3108, against the US dollar, extending losses. It followed a more than 1% drop registered in the previous session.
The currency also weakened against the euro, with the EUR/GBP pair advancing by 0.04% to £0.8495.
The outlook for the UK leaving the EU without an official deal emerged once again Prime Minister Boris Johnson announcement. He plans to revise the Brexit policy to ensure the transitional phase of relations between the UK and EU as scheduled on December 31.
Potential No-deal Brexit Erases Pound’s Gains
Johnson’s move means the UK and EU would have less than a year to discuss and impose a free-trade agreement. Several political analysts believe this to be nearly impossible.
The Prime Minister’s decision wiped the 18-month high gains the pound made after the Conservative Party achieved a crucial victory on Thursday.
The election success of Johnson’s party last week became a key source of the sterling’s strength, as the fx market grew optimistic over a clear Tory mandate and an organized Brexit.
The $1.30 level is a huge pivot point now for forex traders, according to market analyst Jeffrey Halley.
Investors are also anticipating further disruption. This is because the UK Prime Minister prepares to present the divorce part of his Brexit agreement to the parliament on Friday.
Currency trader Mingze Wu stated that the forex exchange market realizes that Johnson meant what he said – Brexit will happen no matter what.
Wu expects the pound to stumble as low as $1.20 per dollar due to worsening developments.
Still, it was too early to weigh the renewed risk of a disorderly Brexit. But the fact that Johnson missed his October 31 deadline for leaving the EU signals that the December 2020 deadline might receive an extension, according to fx strategist Thu Lan Nguyen.
That meant Brexit could be put in the spotlight during the Bank of England’s (BoE) meeting on Thursday.
BoE Governor Mark Carney cautioned on Tuesday that monetary policy tools risk becoming ineffective. Unless there is better cooperation from governments on trade and fiscal policy.
While last week’s election clarified the UK’s political outlook and offered grounds for confidence, the central bank is expected to keep a relatively cautious stance tomorrow, keeping its rates on hold.
