The British Pound and Brexit – what is next?

iCrowdNewswire   Dec 28, 2020  3:02 PM ET

The Brexit historical deal represents the new era in relations between the European Union and the UK. Brexit has undoubtedly shown significant impact on European and UK economies imposing many uncertainties for both parties.

At last, London and Brussels have finalized the post-Brexit trade deal they had been negotiating for ten months. This is a “good” and “fair” deal for each party, according to European Commission President Ursula von der Leyen.

The outcome of post Brexit negotiations between London and Brussels already has economic consequences. The British pound rose sharply against the dollar and the euro succeeding the post-Brexit deal.

The pound sterling appeared seriously shaken by the political procrastination of the United Kingdom. Analysts were perplexed, mostly as the health crisis context was far from being reassuring for the markets. Britain found itself cut off from the world.

Another element that worried investors is that the markets were tired of Prime Minister Boris Johnson’s unpredictable announcements, former Brexit ambassador during the campaign in 2016.

Unsurprisingly, the pound sterling has shown a historic decline during the past months. The pound is now moving close to its strongest level since April 2018, reaching December 17 the price of 1.3624 dollars per pound. However, it remains far from its pre-Brexit levels. The day before the referendum results, the pound traded for 1.4877 dollars and 76.53 pence to the euro.

This serious situation could have also slowed down the European economy since the euro was also in decline. But, the agreement between Brussels and London could be a game-changer, however.

Brexit, what will change on January 1

The agreement reached on Christmas Eve radically changed relations between the European Union and the United Kingdom. The return of borders, the circulation of goods and people, fishing, justice and police cooperation are the main changes.

From January 1, the UK will leave the European single market, which will end the free movement of people, goods, services and capital. Borders will reappear, and customs controls applied to products exported and imported between the two areas. In the case of food products, phytosanitary declarations become mandatory.

GBP / USD forecast: post-Brexit rebalancing

Investors are still worried about the future of pound. GBP / USD is technically bullish but may be subject to rebalancing.

GBP / USD peaked at 1.3618 as hopes of a post-Brexit trade deal continued to support the pound. The pair pulled out to settle in the 1.3550 price zone after a deal was finally reached on Christmas Eve. Over the weekend, the EU and UK released the full text of their post-Brexit deal, including details on trade, law enforcement and dispute settlement, among others.

The respective parliaments must ratify the agreement. On fisheries, the most controversial issue, both sides agreed to a five-and-a-half-year transition period. EU fishing vessels will still be in a position to fully access UK waters, with a 25% reduction gradually imposed on their fishing quota.

GBP / USD maintains its bullish position. The daily chart shows the price holding above the bullish moving averages as the technical indicators have loosened from their midlines, maintaining the moderate upward force in positive levels. The technical indicators are stabilizing at positive levels after correcting for extreme overbought conditions, with the pair expanding well above all of its moving averages.

It remains to wait and see the effectiveness of the implementation of the agreement and its real impact on the economies for both the EU and the UK. According to many analysts, investors may still stay cautious for some time. Most probably, those with GBP hedges over the last couple of years might not be prone to close them, which still might happen within the next months.


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