Despite the obvious focus of coronavirus’ impacts on currencies in the short term, one big elephant has still not left the room for the UK: the Brexit trade talks.
As mentioned in my update Under Pressure at the start of the month, the global onset of coronavirus has not sidelined the importance of the Brexit negotiations, quite the opposite; with the UK now coming under twice the scrutiny – especially considering the Government’s aggressive timeline to conclude talks. To summarise, I mentioned that only an extension could possibly alleviate the pressure on the pound in the mid-term, as seen by previous extensions, but it remained to be seen if Johnson found that choice to be too politically damaging, bearing in mind his promise to the red wall to ‘get Brexit done’.
Since then, both Michel Barnier and Boris Johnson have recovered from Coronavirus and their respective teams have agreed to resume the trade talks via video-link – the fact this is happening at all was enough to spook some sterling holders to forfeit the week’s gains against the euro and dollar. In addition to this, after the announcement of the three rounds of talks, noted below, the managing director of the IMF immediately piled on the pressure, by declaring the UK and EU should “not add to uncertainty” and eluded to the support of an extension to assist in this.
Simply put, all the fears we have discussed regarding a deal, no-deal or extension are all back with a vengeance. The toxic cocktail of a reduced negotiating period, a government bound by law to conclude or leave talks this year and a global pandemic on top all add up to one straightforward choice for the UK Government: extend and delay to fight COVID19’s impacts or potential no-deal with a coronavirus recession. The pound’s fate will rest on the outcome.
Brexit negotiation dates:
- Week commencing 20th April
- Week commencing 11th May
- Week commencing 1st of June
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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