Yesterday it looked so nice for bulls who had been betting on a further rising british pound. The Bank of England yesterday said that interest rate hikes in the UK are now rapidly imminent, and the pound jumped against the US dollar to 1.4064 yesterday afternoon. Till this morning the price has held steady at 1.3980.
But then came today’s speech by Michel Barnier, the EU Commission’s Brexit director (see speech below in the video). At minute 10:30 in the Video you can see the most important words. There are currently important detailed questions between UK and the EU about the transition period, which should enable UK to have a soft exit from EU.
However, Barnier clearly states that existing differences of opinion between London and Brussels regarding the transition period are serious. If this differences remain, there will be no transition period! Forex traders in London are currently interpreting these words in their reactions in such a way that it´s obvious that the transition phase will not take place. Some observers also say that a hard brexit is more likely.
Most Forex traders reacted almost shockily, chasing the pound against the dollar down to 1.3790. That’s 190 pips less than this morning, and 276 pips less than yesterday afternoon. Well, the world’s coming to an end? Total brexit horror? As you could see in the last few months, nothing around the brexit is carved in stone. The British negotiating side still wants to make its statement this afternoon regarding it´s view on the current status of the talks.
Perhaps Theresa May and Jean-Claude Juncker will have to meet again for lunch and make things better. For example, it´s a question of whether EU citizens who move to the island during the transition period lose their right of residence after the transition period. Such “funny details” are discussed at the moment. Is today´s Pound decrease forgotten on monday because the negotiations on the transition phase are still making progress? In any case, the pound should not be written off this time either! By the way, Euro vs. Pound has risen by 90 pips to 0.8870 since this morning.