GBPUSD, H1
The UK’s International Trade Secretary, Liam Fox, who is a staunch Brexiteer, remarked over the weekend that there was now a 60-40 chance for the UK and EU failing to come up with a new deal. Fox blamed “intransigence” on the part of the EU, while others (Remainers and EU negotiators) charge that the UK government’s “cake and eat it” expectations have simply been too fanciful. Fox remains loyal to PM May but many were surprised he did not follow Boris Johnson and David Davies out of the cabinet following the Chequers Announcement. His strong piece in the Sunday Times follows the comment from BoE Governor Carney on Friday of there being an “uncomfortably high” risk of the UK leaving the EU without a new deal. The so-called no-deal scenario, or ‘WTO Brexit’ as Brexiteers prefer to call it, would see the UK leave the EU on 29th March next year and shift to WTO trading rules for trade with the EU, which most economists see as being costly to both the UK and the EU relative to trading in the single market. Such a scenario would also be the most risky for the UK’s financial sector, which is the UK’s golden goose in terms of UK tax revenue, as its dominant role in European finance would be threatened without a new deal in place. In light of the risks, there is potential for the negotiating period to be extended beyond 29th March 2019. It’s also looking increasingly likely that there will be another referendum, if not a general election given the need to attempt to clear the muddy political waters.
As ever, and like every hiccup on the Brexit road, it is Sterling that takes the hit. Against its major trading partners, Sterling has weakened and continues to weaken. Today, Cable is trading at 11-month lows at 1.2953, EURGBP holds 0.8910 and GBPJPY has 144.00 in sight.
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Stuart Cowell
Head Market Analyst
HotForex
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