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Forex Analysis & Reviews: Pound and Brexit: a hindrance to the trade deal
time 29.09.2020 10:10 AM
time Relevance up to, 01.01.1970 03:00 AM

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There has been discussions recently about the importance of a mutually beneficial trade deal for both the British economy and the national currency. Experts say that the trade agreement between the UK and the EU is crucial for the pound's further dynamics. According to them, a trade deal that considers the interests of both parties will indicate the pound's direction in the short and medium term.

At the moment, analysts consider the pound to be oversold, which is caused by fears about a "hard" Brexit. Therefore, markets are concerned about the likelihood of the UK's unconditional withdrawal from the Eurobloc, since experts are sure that this can cause irreparable damage to the country's economy and national currency.

This week may be crucial for London and Brussels. The parties resumed negotiations, from which they expect clarity on the Brexit issue. The final decision on the trade deal will be known by the end of December 2020. However, by prior agreement of the parties, the deadline for concluding the transaction is set for the next month. This is necessary taking into account the time reserve and registration of the relevant papers in case of a positive decision.

The GBP began to grow rapidly, inspired by the likelihood of breaking the dead end on a deal. Yesterday, it rose by more than 1%, steadily gaining height. By midday, it was trading near $1.2904, after surging to another 1.3%. Against the European currency, it also rose by 1%, to 90.30. Analysts said that this is the maximum value for the last 20 days. This morning, the GBP/USD pair started at the level of 1.2847, and then broke through it. Now, it is trading near the range of 1.2855-1.2856, trying to repeat yesterday's records.

Experts believe that BoE maintaining the key rate at the current level is another factor why the pound rose. According to the regulator's statement, the lower limit of the key rate is now 0.1%. Earlier, a study by the Bank of England raised the issue of negative interest rates. Experts carefully analyzed the problem of the positive and negative impact of negative rates on the British economy and they concluded that negative rates have more advantages than disadvantages, which can help the country's economy in the long run.

On another note, the passion around Brexit threatens the relative stability of the British economy and the dynamics of the pound. However, the British authorities are doing its best to smoothen out the negotiations and in making further decisions. Last Friday, the United Kingdom said that the parties will have to work hard in the negotiation process over the trade deal. Earlier, the British authorities passed a bill "On the Internal Market", which alarmed the world community due to the possibility that the UK's 2019 withdrawal agreement will be canceled. It can be recalled that it guaranteed the protection of the borders between Ireland and Northern Ireland. Experts made it clear that this was a primary issue in last year's Brexit negotiations.

At present, the markets are tensely watching again the negotiations between the UK and the European Union, trying to predict the result. It should be noted the pound's fate and the country's economy depends on the final decision. Here, analysts and market participants expect a favorable outcome, in which there is room for compromise and a reasonable approach to the most important economic issues.

Larisa Kolesnikova,
Analytical expert of InstaForex
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