Pound Sells Off on Brexit Woes

Pound Sells Off on Brexit Woes

The British pound has taken a 2% hit against the U.S. dollar over the past few days, driven by growing concerns that the UK may leave the European Union without a trade agreement.

Brexit negotiations are ongoing, with UK Prime Minister Boris Johnson taking a tough stance. He’s set an October 15 deadline, planning to exit talks if no deal is reached by that time. While much of the focus has shifted to the global pandemic, Brexit has remained a lingering concern, as Seema Shah from Principal Global Investors points out. She notes that despite the distraction of COVID-19, Brexit negotiations have made little progress.

Key issues at the heart of the stalled talks include competition rules, fisheries, and the resolution of disputes between the UK and the EU.

UK Government’s Risky Moves Fuel Pound’s Decline

Further pressure on the pound came from revelations that the UK government plans to introduce legislation that would override key parts of the withdrawal agreement. This includes a provision that would undermine the deal Boris Johnson signed last year to avoid a hard border in Northern Ireland.

While the pound has rallied 14.13% since its March lows, it has lagged behind other currencies, such as the Australian dollar, which has surged 31% during the same period. The main issue is that, despite its appreciation, the pound remains vulnerable to Brexit developments. As October 15 approaches, the increasing volatility in the pound seems inevitable. Petr Krapta, currency strategist at ING Bank, highlights that “the Brexit head is back on” and warns that the pound is unprepared for what may come next, especially with the UK facing a resurgence of coronavirus cases, recording the highest daily numbers since May.

In summary, the pound’s decline is tied to the ongoing uncertainty surrounding Brexit, as well as concerns over the UK’s handling of the pandemic, suggesting further volatility ahead.