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Markets wait for Brexit verdict

2020-10-16

2020-10-16

Pound can stare anyone down. Review as of 16.10.2020Dmitri Demidenko

The market knows that the pound’s fate is decided at the last moment, and to its favor usually. Will history repeat itself this time?

Britain and the EU try to stare each other down, waiting for

concessions. Who will lose?

Since the 2016 Brexit referendum, the pound sterling has outlived three Prime Ministers, five REPO rate changes, sudden interruptions in trading, and, finally, the pandemic. Due to its high sensitivity to political risks and high volatility, the pound is often called “the Great British Peso” (GBP) and compared with developing countries’ currencies.

However, the traders who work with the pound know the biggest troubles are solved at the last moment. What is more important is to endure the instability until the trade is concluded. GBPUSD bulls believed sincerely that the 15-16 October EU summit would be the Day X. It wouldn’t.

Optimists flooded the market on the belief that London and Brussels will sign a deal at the last moment. They ignored negative news and bought the pound amid the rumors that the parties would continue the talks even if London had passed an Internal Market Bill, violating the EU’s previous agreement’s terms. I don’t see any progress in that dialogue.

- Can you see the cow eating grass up there?

- Wait, where’s the grass?

- The cow’s eaten it.

- And where’s the cow?

- Why should the cow be there if the grass’s already been eaten?

The European Union thinks that a fair partnership with Britain is worth the current effort. However, Brussels isn’t ready to make a deal at any cost. London is surprised to hear that it’s the one who has to make every first step in the future. They believe it’s an unusual approach to negotiation. The parties are waiting for mutual concessions, but either of them hopes to stare the other party down. Someone has to go back on their word, but if you learned to be satisfied with little, you might learn to be satisfied with nothing.

At first glance, Britain will lose more as the EU is its main partner. However, a no-deal Brexit will leave scars on both faces. They will aggravate a record high recession in the eurozone and the UK’s worst economic decline over the last 300 years.

- Hold on! Your last gasp is near.

- You mean, my second wind?

- No, your last gasp.

However, a no-deal Brexit isn’t a reason for panics for sure. A divorce is always a tragedy, but then people can say they lived happily ever after. Because they never saw each other anymore. Still, the parties will have to see each other. They will have to make new deals under the WTO’s terms and discuss financial and other companies’ future. But that will be tomorrow, and today the market’s worried about the pound.

The pound got used to any trade’s being made at the last moment. Thus, a no-deal Brexit might not be factored in its quotes. The markets believe that a deal will be signed. And if not? A collapse of [GBPUSD][1] will be quite possible. What is good about the pandemic is that it taught us not to worry about the future. We don’t know what will happen tomorrow. We just hope tomorrow will come.

{motivation}

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=GBPUSD&returnUrl=true