When the crystal-clear election victory for the Tories in Great Britain was announced in the night from Thursday to Friday last week, there was no hold for the British Pound anymore. Pound vs. US Dollar shot up from 1.3170 to over 1.35. The euphoria was so great because finally, finally, finally planning certainty prevailed. But now? Only three trading days later, the British Pound has lost its entire profit and is currently trading at exactly 1.32. What a disappointment for the Pound Bulls.
One thing is clear: Great Britain will officially leave the EU at the end of January 2020. Until the end of 2020, there is a kind of transition period in which the country’s status remains as if it were still a member of the EU. This period is regarded as a kind of negotiation phase. The new free trade agreement between the EU and the UK must be negotiated by the end of December 2020. A tight timetable. That is why it has been so good so far that the UK has time until July 2020 to extend this transition phase by two years.
But as the Guardian reports, Boris Johnson is likely to want the law to say that this transition period must not be extended beyond December 2020. This increases the likelihood of trouble! Either there will be a hard Brexit at the end of 2020, or there will be a free trade agreement, in which Boris Johnson will virtually give the EU the choice of a hard Brexit? Accept my version of a free trade agreement, or we do the hard Brexit? The fear of this scenario has arrived in the market.
The British Pound had already fallen from its high Friday morning, even without this news. After the first euphoria it was clear to the forex traders that there were still a lot of problems after the good news. The chart shows Pound vs. Dollar since last Wednesday. The euphoria is first out of the Pound Sterling. Does the legal exclusion of an extension possibility go through parliament? We can assume this with a majority of 80 votes! So, shorten Pound? Please decide for yourself, we do not recommend anything here.