GBP/USD : Nervous About Brexit
(Thu, 4 Jun 2020). GBP/USD is easing back Thursday after a week of gains as the June 30 deadline for the UK to ask for an extension of its Brexit transition period approaches. So far, there has been little progress in this week’s UK-EU talks on a post-Brexit trade deal but the UK Prime Minister has pledged not to ask for a talks extension to prevent the UK from concluding the transition period at the year-end without a trade agreement.
GBP/USD FACING BREXIT RISKS
Talks this week between the UK and the EU on a deal to govern trade between them once the post-Brexit transition period concludes at the end of this year continue to show few signs of progress. However, there are still no indications that the UK government will ask for an extension of the talks to prevent the transition period from ending without a trade agreement.
The deadline for the UK to ask for an extension is June 30 and there are fears that if the UK does not do so it will have to trade with the EU under World Trade Organization rules from the start of next year – and that prospect would likely weaken GBP.
However, if June 30 passes without a request for an extension, GBP will likely drop back. Concerns about this were heightened Wednesday when the Bank of England said commercial banks should prepare for the possibility ofno deal in the post-Brexit trade talks. “It is fundamental to the Bank of England’s remit that it prepares the UK financial system for all risks that it might face,” the BoE said in a statement.
Moreover, a poll by the Reuters news agency has suggested that Sterling will lose its recent gains against the US Dollar and weaken further if the UK does not ask for an extension to its Brexit transition period by the June 30 deadline to allow more time for the talks on a trade deal with the EU.
GBP/USD is expected to have weakened to 1.23 by the end of June, according to the poll this week of more than 50 foreign exchange strategists. However, GBP/USD bears should also note that any hint of a deal would likely lift the pair again.
GFS ASIA TEAM
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