After a disastrously bad week, the British Pound is once again sliding sharply against the US Dollar today. Today at 1pm it hit a low of 1.2903. Since then it has come back down a bit to 1.2941. But look at the big picture, the chart since the outstanding election victory of Boris Johnson and his Tories, who won a clear majority in the House of Commons in London. After a brief euphoria in the Pound, the price plummeted a good 600 pips from a high of over 1.35, and that in just 7 trading days. This is a dramatic movement that continues today.
On Friday, the House of Commons was firm in which was previously suspected. An extension of the transition period is no longer possible. So the EU and UK have to decide on their free trade agreement by the end of 2020. Otherwise there will be hard brexit without an agreement from January 2021. The market has become more and more aware in the last few days that there are still a lot of problems around Brexit and that Boris Johnson has to go to the EU for a confrontation in order to lure business to the island after the Brexit deal (or no deal). He will ultimately have to make more attractive offers to companies in various areas of the economy (taxes, regulations, etc.) so that they invest in Britain and not on the Continent.
That smells like a hell of a lot of difficulties in these very tight eleven months. These are very tight for a highly complex free trade agreement. Today the Pound is exacerbated by the fact that Boris Johnson apparently no longer wants to follow EU rules after the Brexit. Even if the UK will stay in the single market for another 11 months. This smells like a hell of a lot of trouble for the whole of 2020. Guess: Is Johnson deliberately going to Brussels for confrontation in order to get the best possible free trade agreement for the UK? According to the motto “Accept my terms or I’ll cut corporate taxes on the island dramatically and you’ll have problems”? The situation for the Pound remains more than shaky!