Brexit – A New President Who Just Doesn’t Think Like Donald

The Lay of the Land

As the end of the Brexit transition period nears it is hardly surprising that Brexit news coverage has seen a sharp increase.

Through October and early November, U.S politics had been center stage. But, with Boris Johnson’s close ally, Donald Trump making way for President-Elect Joe Biden, the British PM may be feeling somewhat isolated…

Since prior to the Presidential Election, Biden had made his position clear vis-à-vis trade with Britain.

Placing the Good Friday Agreement in jeopardy would put any trade talks with the U.S on hold. This was perhaps not the early Biden message that Johnson was looking for. There was always a risk in introducing the Internal Market Bill, particularly with Joe Biden ahead in the polls.

The greater risk, however, was waiting for the U.S Presidential Election to take place before looking to conclude talks.

From an EU perspective, there was nothing to lose by waiting. Trump remaining in office would have been status quo. A Biden victory, however, would have shifted the pressure onto Britain.

As Britain and the EU enter what could be the last round of talks, Biden has already reportedly spoken to Johnson. Biden stance was unchanged. There should be no north and south hard border in Ireland.

The EU and Biden vs Boris and the Brexiteers

To be frank, however, this is the least of Boris Johnson’s worries. Demands from the EU of continued access to UK fisheries and agreeing to EU rules to ensure a level playing field are two major headaches.

Britain has left the EU, yet the EU is clearly making demands that would undermine a clean break for Britain.

Throw in the EU’s demand to review any Brexit deal in 10 to 15 years and it just gets worse. The British negotiating team was perhaps taking enough risk by counter offering a 3 to 5-year review.

It’s hardly surprising that a number of MPs, including Michael Gove, were up in arms over the EU’s latest demand.

Compromise or Stand firm?

Over the last few weeks, there had been the talk of the EU being willing to compromise to close out a deal.

Following EU President Ursula von der Leyen’s comments this week, however, the willingness may have waned.

As EU Chief Negotiator Barnier prepares to come out of self-isolation, there was a warning for the Brits. If the UK fails to change its stance on the outstanding issues, there’s no point for talks to resume.

The EU President had spoken this week, saying that a deal should not compromise the EU single market.

When considering the fact that the EU would lose all access to UK fisheries in a no-deal scenario, a no Brexit outcome would also compromise the EU single market. So, while the EU is pressing for Britain to change its stance, it is still hard to imagine that Johnson would yield on this issue.

Reduced access would be a must as optically anything status quo post-Brexit makes Brexit a pointless exercise…

The British Pound

At the time of writing, the Pound was up by 0.10% to $1.33897 against the Dollar. Recovering from losses from earlier in the day, yesterday, the Pound is eying $1.34 levels and a 5^th consecutive daily gain.

When considering the level of uncertainty over Brexit, hope has certainly come at the right time.

Perhaps Joe Biden’s pressure on Johnson to reach an agreement with the EU has been instrumental in the Pound’s revival.

After all, a trade agreement with the U.S has always been the carrot to lure voters into siding with the Brexiteers. Failure to win over Joe Biden and the Democrats would be a disaster for Johnson, the Tories, and the UK economy.

So, when considering the Pound’s current move back towards September’s current year high of $1.3483, we could see a breakout from $1.35 levels if all goes well.

Failure to reach an agreement not only leaves Britain without a trade agreement with the EU but also with the U.S.

Political uncertainty will undoubtedly return to sit alongside economic uncertainty near-term. It just isn’t the right time to have so much uncertainty with the UK economy plagued by the COVID-19 pandemic.

A return to sub-$1.20 levels, last visited in March of this year, would certainly be a reasonable starting point. We may then begin to hear of Dollar parity with the Pound. In 1985, the Pound had slumped to $1.05 against the Dollar.

Britain out in the cold and a new low will be on the cards…

Looking Ahead

The markets will need to receive some good news over the remainder of this week to support the Pound’s current levels.

Both sides will need to show a willingness to compromise on UK fisheries, EU rules to ensure a post-Brexit level playing field, and a 10-year Brexit review.

For Boris Johnson, however, there may need to be a greater willingness if he wants a U.S trade agreement to follow. Sadly for the British government, the EU is all too aware of Biden’s stance. So, the ball may well be back in Britain’s court to deliver.

What a catastrophe it would be for the Brexiteers if a compromise on all of the above is the only way forward.