What Is The Current Standing On Brexit?

Brexit is nearing the endgame, and there is currently no clear indication of what Brexit trade agreements will look like. With a no-deal Brexit and a trade agreement Brexit both still very much on the table, what are some defined factors that currency traders can be aware of?

British PM Johnson has restated his confidence recently in the UK having continued prosperity in the event of a no-deal, however whether this is posturing for an edge in negotiations remains unclear. Analysts at OFX have forecasted GBPUSD rates to drop to 1.250 in the event of a no-deal. A no deal seems to be increasingly likely, with Germany’s Chancellor Merkel recently referring to the limited time remaining to arrange a deal and the lack of process made to be causing members of the bloc to be getting “impatient”. The EU Barnier’s offer for Britain to reclaim 15-18% of the quota of European fishing has been shot down by the UK, and deemed unacceptable by Downing Street. Fishing agreements have consistently been a sticking point in the Brexit negotiations, despite the fishing industry only accounting for around 0.1% of the UK’s total economic output.

On the other side of the coin, there have also been many indicators for a Brexit trade agreement, with Chancellor Merkel stating that “a deal is in everyone’s interests”. The President of the EU Commission has stated that progress has been made in recent weeks, with “more movement”, coming after difficult weeks of minimal progress. GBPUSD forecasts for a trade agreement Brexit are significantly higher than current rates, with an end of year target at 1.3600, and expectations for rates to go above 1.400 in 2021 (NAB).

These two significantly varied scenarios will be a deciding factor for the exchange rate in the coming months, and lingering uncertainty regarding the situation stagnating volatility. Breakthroughs in trade agreements will likely send the sterling into a bullish rally.