Brexit, the Pound and Its All Too Brief Visit to $1.35 Levels

It was just a few trading days ago that we saw the Pound strike a current year high $1.35149 before hitting reverse.

While the markets had responded favorably to Boris Johnson’s impressive General Election victory, there was some uncertainty over what lay ahead.

As early as Friday, the debate had begun on whether Johnson would look to deliver a softer Brexit having garnered a sizeable majority.

This was perhaps wishful thinking when considering the fact that the British PM had been the force behind Brexit back in 2016.

Through the early part of this week, this uncertainty has evaporated and with it the General Election driven upside in the Pound.

As of this morning, the chances of Britain departing from the EU without a deal has spiked.

Boris Johnson and the Tories are looking to add language into the Brexit Bill that would remove the option to extend the existing transition period to beyond 1-year.

That means that deal or no deal, Britain will leave the EU in December of next year.

With Johnson now holding a sizeable majority, the fear is that the amendment to the Brexit Bill will pass seamlessly through Parliament.

The Establishment

After seeing Boris Johnson storm to victory last Friday, Brussels may well have gasped in disbelief. Perhaps few would have thought that the British electorate would vote for the pro-Brexiteer.

3-years of pushback in the hope of forcing the UK to take a 2^nd EU Referendum vote has backfired. In fact, the EU’s handling of Brexit has likely inspired the British PM to play hardball.

It’s quite a move by the British PM, who won the UK General Election with delivering Brexit the key pledge.

Unsurprisingly, Michael Barnier raised his concerns over such a short time-line. Failure to iron out an agreement would leave Britain and the EU to trade under WTO trade terms…

The Pound

After surging to the current year high $1.35149 on Friday, it’s been a reversal through today. At the time of writing, the Pound was down by 0.90% to $1.3212.

There had been the possibility of the Pound rising to $1.40 levels should the chances of a softer Brexit surfaced. Johnson’s latest move, however, is one of a hard Brexit.

The Pound will now fall back into the rollercoaster ride that it had enjoyed going into last Friday’s General Election.

So, first up is the Parliamentary vote to amend the Brexit Bill. Further downside for the Pound could be on the cards should the Bill sale through.

From then on, it’s going to be how Britain and the EU progress in negotiating a trade deal. The latest move brings Brexit firmly back to front and center for the Pound…

Granted that a rise in the possibility of a no-deal departure from the EU is a negative one. There is one possible positive to consider, however. Johnson’s relationship with Trump could draw the U.S into the battle…

The U.S President has already raised the threat level of tariffs on the EU. Perhaps if the EU drags its feet on negotiations with Britain, Trump will target the EU next…

Either way, it does seem far to early for the markets to hit the panic button…