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16 Oct 2020
4 min read

Volatility Surrounds Sterling as Brexit Decision is due Today

Volatility Surrounds Sterling as Brexit Decision is due Today

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Key Takeaways:
  • Brexit keeps Sterling in volatile conditions due to negotiations and rejection from Brussels to accept current terms.
  • GBP/USD managed to reach a weekly high of 1.3083 as traders expected an early deal. An expectation that failed to occur.

This week has proved to be difficult to digest for Sterling traders as the Brexit negotiations created lots of volatility that spurred the UK currency to wild swings in the range between 1.2860 and 1.3090 against the US dollar. Prime Minister Boris Johnson is expected to bring about a deal with the EU on Friday amid unwillingness in Brussels to concede to current terms. Even though the deadline was formally set to Thursday, in a meeting in Brussels yesterday it became clear that no deal will be reached at the present time, as the parties could not come to an agreement on fisheries and security.

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First Brexit and Now Covid-19

The Brexit negotiations are seemingly moving in time with no real developments or conclusions and even PM Johnson stated on Wednesday that he was disappointed over the lack of progress for the last two weeks. On the EU side, there does not seem to be any sign of rushing or a desire to compromise as the President of the European Commission Ursula von der Leyen published a tweet earlier this week that the EU is working on a deal and it would take a “lot of work” still to be done in terms of fishing rights, level-playing field and governance.

The stalled Brexit talks are not the only reason for the uncertainty in the Sterling, but also the new restrictions imposed by the UK government. Starting Saturday Londoners will be banned from socializing with other households behind closed doors. The UK capital will be put on “high alert” status, meaning tighter social restrictions. The new measures introduced aim to reduce the number of new COVID-19 cases which in London have been doubling every 10 days.

GBP’s Performance Doesn’t Come as a Surprise

The bearish sentiment in the Sterling is easy to comprehend given how uncertain the current UK situation is. For a short time on Wednesday, the GBP/USD reached a weekly high of 1.3083 in hopes that there will be a deal by PM Johnson before the self-imposed deadline on Thursday, Oct 15. However, this expectation failed to materialize and the Sterling is now trading at 1.2888 against the US dollar, hovering near the weekly low of 1.2863.