Brexit Woes Haunt the Pound
Fiona Cincotta September 22, 2020 11:56 AM
The clock is ticking and the two sides are still far apart
After months of very little on the Brexit front, Brexit fears have returned with a bang over the past few weeks.
As the clock ticks down not just towards the end of the transition period on 31st December, but perhaps almost more importantly towards the UK government’s self-imposed deadline of 15th October, the markets are starting to tune into the fact that a no trade deal Brexit could be a reality.
Key upcoming dates
Boris Johnson has been clear from the start that he has no intentions of extending the transition period, trade deal or not, covid-19 second wave or not.
How close are they and can they reach a deal?
Talks have been deadlocked for months. Progress in talks has been limited with both sides venting frustration at the lack of progress The two sides are still wide apart on several issues, most notably on business regulations which covers the extent to which the UK can support certain industries (the level playing field) and fisheries, access to British fishing waters.
Rumours swirled that the British government made some concessions over fisheries in the latest round of talks could have helped. Chief EU negotiator Michel Barnier and EU Commission President Ursula von der Leyen seemed marginally more optimistic saying that they believd that a deal could still be done. The Pound at these levels of around $1.28 is still optimistic a deal will be achieved, perhaps a little too optimistic.
British Prime Minister Boris Johnson recently threw a spanner in the works through the Internal Markets Bill. On a broad level this bill aims to keep trade fluid across the 4 countries which make up the UK – England, Scotland Wales and Northern Ireland. However, the bill also undermines some key parts of the Brexit Divorce Treaty, most notable the Northern Ireland protocol.
No trade deal Brexit hits GBP
After the covid hit sent GBP/USD to 1.14, its lowest level in around over 3 decades in March, the recovery had been steady, hitting just below $1.35 on the first of September. GBPhas since dropped sharply versus the USD and the EUR since early September as concerns of a no trade deal Brexit started to appear. As fears over a no trade deal Brexit rise, the Pound could weaken further potentially pulling GBPUSD towrds $1.20. Any signs of a breakthrough could boost sterling back over $1.30
GBP/USD trades below its 50 day moving average on the daily chart. It tested its 100 and 200 SMA at $1.2710 today and the support held, for now. A breakthrough this level could see GBPUSD plummet to $1.25.
On the flip side, resistance can be seen at $1.29, the descending trendline, prior to the key psychological $1.30
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