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12 Oct 2020
3 min read

Brexit Uncertainties Pose Risks to the Sterling

Brexit Uncertainties Pose Risks to the Sterling

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Key Takeaways
  • UK PM discusses the country’s future
  • Brexit and COVID-19 impact the sterling
  • Sterling movements limited by upcoming key developments

Last week we saw the sterling move higher against its main competitor, the US dollar. The most followed sterling pair opened last week at 1.2942 and closed 107 pips higher at 1.3049. During the weekly period, we witnessed a low of 1.2846 and a high of 1.3050.

To briefly cover the weekend before we enter the week, Prime Minister Boris Johnson had two important discussions regarding the future of the UK. One was with French President Emmanuel Macron and the other was with German Chancellor Angela Merkel. In the call to President Macron, PM Johnson warned that the UK is prepared to leave the EU without a Brexit deal and on “Australian style terms”. In his call to Chancellor Merkel, PM Johnson made similar remarks. Given his rather extreme stance, he emphasized how important it is for both parties to “explore every avenue to reach an agreement.” As the Brexit deadline approaches, PM Johnson is hopeful that progress will be made towards an agreement which would cover key gaps such as the problematic area of fisheries.

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Brexit Concerns Loom on the Horizon

Looming concerns over Brexit and the COVID-19 make it difficult for the pound to keep the latest gains made over the last week when the Cable benefited from broad US dollar weakness. Currently, the GBPUSD is trading slightly to the downsideat 1.3020 as we brace for the Brexit negotiations that are set to continue this week. The other major GBP crosses perform similarly.

The UK government and the Tory leader have 3 days until the official deadline, Oct 15, to put an end to the UK – EU negotiations saga. In these few days until the deadline set by the UK government both parties need to settle on an agreement. Last week EU negotiators headed to London for discussions, which ended without any achievements. This week, meetings take place in Brussels for another round of talks.

To make things more intense, the climbing numbers of coronavirus cases in the UK pose another massive threat that needs to be addressed by the PM. In this regard, PM Boris Johnson is set to discuss with MPs later today the introduction of new social restrictions in an attempt to control the spread of the virus.

Movement in the sterling is now limited by the anticipation of the developments of current events as market participants are waiting for results from the negotiations as well as a new approach by the UK government against the spread of the coronavirus.

It should come as no surprise that investors are in favor of gold in the midst of a global pandemic, economic downfall, and uncertainty moving forward.

The precious metal made a historical record high earlier this year when it rose to $2,069 on Aug 6. The previous record high was $1,920 reached on Sep 6, 2011.