When the pandemic dust settles, how the British Pound may beat back the Euro.
This time last summer, Sterling was beginning its inexorable slide downwards in the face of Brexit pressure and the growing possibility of a no deal. And as confidence in the Brexit process and the British government dissipated, our view was for clients was to sell Sterling.
Now, as the UK grapples with a worldwide pandemic, Brexit is also back on the agenda. This week talks between UK and EU negotiators charged with thrashing out post-Brexit trade terms ended in stalemate, and many sticking points remain. And whilst the European bloc calls for Britain to continue following level-playing field arrangements, slippery issues such as agriculture and fishing rights, immigration and trade tariffs threaten to derail any accord. If no agreement is reached and ratified before the end of 2020, the UK faces WTO terms that are certain to have a negative impact on the economy. All this on the surface looks like bad news indeed for the GDP.
And yet, incontrovertibly, the events of the last 8 months have significantly impacted the balance of power between the UK and Europe. The new Conservative majority provides a stable basis for the government’s negotiators who were previously undermined by the weakness of the previous minority government.
Furthermore, COVID-19 has put the European project on the back foot and laid bare its weaknesses, causing dissension in the ranks. Wealthy European nations so far refuse to issue a ‘corona bond’ to help the weaker member states – demonstrating the EU’s intrinsic economic inequality and provoking uproar from Italy and Spain.
Germany, the powerhouse of the European economy and the driving force behind the bloc has entered a technical recession. Furthermore, a German constitutional court has ruled the ECB’s bond buying unlawful. This disagreement between a pillar of German democracy and a pillar of the European economy further weakens Europe’s negotiation position.
Privalgo Founder and Director Zeb Bham says, “Europe has learned an important lesson. The COVID-19 crisis has exposed the disadvantage of being a member of a monetary union without a unified fiscal approach. Europe will need strong leadership and will want to make amends. The tone towards the UK has already softened and I suspect a more conciliatory tone to the upcoming Brexit negotiations. Boris Johnson will want to capitalise on this and reach a speedy conclusion to the trade agreements.”
While Sterling unequivocally faces a volatile summer, it is in a far stronger position than it was last year. And as the global FX market navigates current uncertainties in these unprecedented times, Privalgo promises expert opinion, strategic insight and market-leading tech every step of the way. Get in touch with a Privalgo representative to discuss how to mitigate risk and maximise opportunity.
Contributed by Ralf Martyrossian – Ralf is a Business Development Manager at Privalgo, specialising in partnerships and property transactions. Along with passion and knowledge when it comes to financial markets and economics, Ralf is also a English Literature graduate from the University of Bristol. Besides from analyzing currency charts, in his spare time Ralf enjoys boxing, cycling and cartography.
Speak to Ralf or another member of Team P today – Let us tailoring our approach, to maximise your next currency transfer.