Good morning,

For those who joined myself and Alistair for our webinar on COVID-19’s impact on the market, the question asked by a multitude of viewers and indeed from others in emails afterwards was simply: what’s going on with Brexit with all of this going on? Simply put, regardless of the huge impact coronavirus is having on the pound on its own, Brexit remains the key suppressing force against sterling and COVID-19 is magnifying that force.

As negotiations have understandably come to a halt, with the EU’s chief negotiator and Britain’s Prime Minister both having coronavirus, fear spread into pound markets that the UK would accidentally slide into a no-deal by default, as the clock on the Government’s incredibly tight timetable for talks continued to tick. This, in turn, was made worse by the global flight to dollars as the coronavirus outbreak took hold, and those in the market dashed for a haven currency. Looking forwards, to build on the pound recovery in recent weeks, the question posed to the Government will be the same one that has plagued The House of Commons for the last four years and two Governments: do we ask for an extension?

Despite the question carrying politically toxic repercussions for all Tory MP’s and the Cabinet, as each of them signed a pledge not to ask for an extension when they were voted in; and the additional fact the withdrawal by year-end is enshrined in law, some in the market are now looking to gamble on a u-turn and push the pound up.

The best way I can describe sterling across the last four years is akin to a tightly coiled spring, with multiple hands pushing it down and keeping it tightly sprung. Realistically, the pound is tremendously oversold and undervalued for a currency linked to the sixth-largest economy in the world – the key hand pushing against the spring is Brexit and its trade fears, now joined with an additional shove from coronavirus. As we have seen from previously agreed extensions to the transitional period with the EU, some of that pressure comes off sterling, so one could expect the same again if arranged. The question Johnson has to answer now, is stick or twist with the electorates economic and physical health – and the stakes could scarcely be higher.

Have a great day,

Author: Joshua Haden-Jones, Senior Relationship Manager


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