Sterling (GBP) Exchange Rate Sinks amid Brexit and Free Trade Agreement Leak

Sterling (GBP) Exchange Rate Sinks amid Brexit and Free Trade Agreement Leak

The Pound sank in Wednesday’s European trading as Brexit negotiations continued and documents were leaked that showed Britain may end up with a similar style trade deal to Canada. The Pound fell against the US Dollar (GBP/USD) and the Euro (GBP/EUR) as the EU’s leaked document on a future trade relationship between itself and the UK hit the markets.

The report read:

‘The European Council has to take into account the repeatedly stated positions of the UK, which limit the depth of such a future partnership. Being outside the customs union and the single market will inevitably lead to frictions. Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU single market as well as of the UK market. This unfortunately will have negative economic consequences.’

It seems as if the EU is offering only a free trade agreement (FTA) which would offer zero tariffs on goods, and maybe some services. However, the EU also seems to have left a space for the UK to make a U-turn should it choose.

The leaked EU draft guidelines stated:

‘The above approach reflects the level of rights and obligations compatible with the positions stated by the UK. If these positions were to evolve, the Union will be prepared to reconsider its offer in accordance with the principles stated in the guidelines of 29 April and of 15 December 2017 as well as in the present guidelines.’

Meanwhile, the Euro has been tentative after the Italian election on Sunday which saw a huge rise in populist parties. A government is expected to take weeks or even months to form, and is another wakeup call for the Eurozone following the shaky German election last year which also saw populist parties surge in popularity.

In the US, Trump’s top economic advisor Gary Cohn has resigned from the White House after he refused to back a bill by Trump over tariffs amid prospects of a trade war. Friday is set to be a big day in terms of economic data with the US Non-Farm Payrolls ecostat due to reach markets. Economists are forecasting a 205K figure, while US Unemployment is set to fall from 4.1% to 4.0%.

Share this article

Leave a Reply

Your email address will not be published.