GBP/EUR Exchange Rate Outlook: ‘No Deal’ Brexit Threat Set to Tumble Pound Sterling

GBP/EUR Exchange Rate: ‘No Deal’ Brexit Threat Set to Tumble Pound Sterling

As the trading week came to a close on Friday, GBP investors were not filled with confidence heading into the opening week of Brexit negotiations next week. The euro has fared better than most expected this week especially considering the recent coronavirus outbreaks in Italy and other parts of Europe.

The UK government announced a threat that it would consider leaving the EU without a deal if the two cannot come to terms on a trade deal by June 2020. The EU and UK have approached the preliminary talks with some confrontation, and this has only scared off investors as they feared the possibility of a ‘no deal’ Brexit outcome. With the UK government offering this outcome if no solution is offered up, investors had alarm bells ringing as the two prepare to meet again at the start of next week.

The UK government refuses to accept EU mandate, increasing tensions between the two

Tuesday saw the EU set out their negotiation mandate. The main point from the document was that in order for the EU to agree terms with the UK on a free trade deal, the UK must be willing to abide by some EU laws and regulations following their departure from the European Union in December. However, when the UK released their own mandate on Thursday, the market saw that the process was not going to be easy, with the UK government dismissing the chance of the UK abiding to these EU laws, and instead threatened the EU with a no deal departure. This threat worried investors as the chance of a ‘no deal’ Brexit became even more of a significant reality as historically this has been the main driver in pound weakness.

Trade talks are set to get underway next week, mandates scrutinised

Traders will take everything they can from the two mandates that were released this week over the weekend as they anticipate the start of the Brexit talks. The British negotiating blueprint called for talks to be “based on friendly cooperation between sovereign equals, with both parties respecting one another’s legal autonomy and right to manage their own resources as they see fit”. The document failed to mention cooperation in regard to security or defence – areas in which Britain feels like it can rely on existing arrangements, which need not be discussed in the future relationship with the European Union. The EU noted that Britain says that it wants Canada, but noted that Britain is not Canada, and thus is unlikely to get its way with obtaining a similar deal.

The sheer complexity of the Brexit negotiations will mean a long and difficult road ahead for the two sides, with each corner fighting for their best interests whilst attempting to obtain a deal which suits everyone.

If you’d like to discuss these factors and how they could impact an upcoming currency transfer, feel free to get in touch with me, James Lovick, using the form below.