The Pound once broke up to 1.3 mark against dollar, so called “psychological barrier “recently, mainly due to the optimism over the UK-EU trade deal.
Last week, the trade representatives of the UK and the EU continued their talks and both sides pointed out that they are closer to reaching the agreement. However, some considerable differences are still the obstacles over the deal. No matter the UK or the EU, they are still bargaining for concessions from counterparty in the deal.
Over these weeks, the UK side has shown a tough stance in the talks. British Prime Minister Boris Johnson has set a deadline of October 15th, which means that Thursday’s negotiation would be likely the last round. The UK may withdraw from the talks and prepare for the “Hard Brexit” at the end of the year, if no meaningful results are concluded after the deadline.
In fact, even if the UK and the EU can finally make the trade deal, it is foreseeable that all the relevant legislative procedures take times. To some extent, such a deadline is realistic for both sides.
For the investment market, traders are a bit positive towards such a big uncertainty, expecting the good side. The UK and the EU emphasized that the negotiations are making progress, but in fact, according to various source, the officials inside the EU are holding a tough attitude towards the negotiations, especially from the two big countries, Germany and France. Those voices were “no agreement may be better than a bad agreement.” So far, the latest news increased the worries as no consensus is made from both sides. German Chancellor Angela Merkel has warned that the EU must prepare for Brexit without a deal.
The BOE is also preparing for the “Hard Brexit”. Last week, it is reported that the central bank was checking with those local banks whether it is ready to implement negative interest rates. In order to deal with the severe impact of the pandemic, the market expects that BOE may expand the QE scale as soon as in the next meeting. At the moment, negative rates policy is not the first choice based on the previous comment from the BOE officials.
ZFX analyst Jacob Leung said that, now the Sterling dropped back to 1.3 below. Over this period, the markets may just under the “stubborn optimistic” condition. We all know that the EU are managing the interests of more than 20 members, and technically it is quite difficult for itself to satisfy all interests within the entire EU. In any case, while actively betting on the Pound, investors may have overlooked the UK economy and the easing from BOE. No matter how’s going regarding the Brexit, the outlook of Pound will be quite uncertain.
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