Last week the pound sterling showed the biggest fall in September. From January 1, 2021, the UK will lose access to the European single market, and there are no concrete results under the agreement yet. Both the European Union and the United Kingdom note that the negotiations may not be crowned with success.
What are the prospects for the British currency if an agreement is reached and if not? AMarkets experts answered the question of Fortrader magazine.
– Buyers of the GBP / USD pair have significantly recovered the losses incurred at the beginning of the week, after British Prime Minister Boris Johnson and EU President Ursula von der Leyen were unable to reach a compromise on the loudest political process of our time.
As a reminder, the UK and the EU must agree on the terms of future trade relations by the end of December 2020. The negotiations, which are actively continuing in December, have not yet led to noticeable results, however, there are still some signs of progress. For example, the current recovery of the GBP / USD pair is a reaction of traders to London’s agreement to remove several clauses from the law on the internal market, which, according to the EU, violated international law. In particular, the parties agreed on the presence of EU representatives in Northern Ireland during the inspection and control by the British authorities of goods that enter Northern Ireland from the UK. This provision was adopted in order to enable Brussels to monitor the application of EU tariffs by London on those goods that, in the conditions of an open border, can transit through Northern Ireland to the Republic of Ireland, which is an EU member state. While the agreement is separate from broader negotiations, England’s willingness to make concessions is a good sign.
Meanwhile, London and Brussels are making a final attempt to conclude a free trade agreement. During a telephone conversation between Johnson and the head of the European Commission, Ursula von der Leyen, on December 7, the parties announced that they would continue the dialogue, despite persisting disagreements over equal terms of trade, fishing rules and settlement of disputes. In particular, negotiations will resume later this week. Given the obvious interest of the parties in finding a compromise, a scenario in which an agreement will be concluded at the very last moment remains the most likely. Several investment banks, including Rabobank, Standard Chartered and Berenberg, also believe that an agreement is almost imminent. With that said, the GBP / USD pair maintains upside potential above 1.3550.