UK EU complete deal with UK parliament approval vote tomorrow

Good morning,

The UK and EU accomplished a Brexit deal late on Christmas eve. The market has generally bought sterling on news of a deal and sold it off on delays, or a no-deal outcome. The logic behind this is simply driven by certainty, as no real-time data on either outcome exists, leaving a lot of guesswork to fill in the blanks.

How did the markets react? Upon the announcement, GBPUSD fell by roughly 0.5%. A case of buying the rumour and selling the fact, as we had seen before with Theresa May and her Brexit deal. GBPUSD has picked up today with a 0.7% gain to 1.3523. GBPEUR remains stubbornly glued to 1.1030, despite the rally to 1.1169 on the 24th December.

What next? The Brexit deal will now pass through parliament on both sides of the channel, with the UK parliament voting tomorrow, December 30th. The Guardian report that Keir Starmer is beginning to face a high-profile backlash against Labour’s position to support the deal. The market believes the deal will pass through parliament, but there is always the possibility of an upset.

For businesses and individuals who repatriate funds back to the UK, this is an important crossroads to think about your currency management plan for 2021. Whilst Brexit will not go away, it is likely to take a backseat as the markets focus on the UK Covid vaccine and the Bank of England’s fiscal and monetary policies. Investment bank forecasts for GBPUSD in 2021 predict levels as high as 1.45, with a focus on the US dollar becoming less attractive as global vaccinations attempt to contain the virus.

We’re here to help with these discussions, so please arrange a time to speak with one of our currency account managers.

Have a great day.

Author: Alistair Hutson, Senior Relationship Manager

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