GBP Remains Vulnerable as Germany calls for No-deal Preparation

Latest concerns surrounding Brexit

The German Government has cast a shadow over the probability of a UK-EU trade deal, urging other EU states to prepare for a no-deal Brexit scenario. This doubt has come in the form of an internal document, doubting the chances of an early agreement.

This is not good news for either the UK or the EU. Tory MP erupted during an interview with the BBC, explaining that the media company hardly refers to the large £70 bn trade deficit Britain has with the EU, which is why the EU doesn’t actually want a no-deal scenario.

There have been a number of mounting calls within EU state members to pursue an extension to the transition period, over fears that a deal with the UK will not be struck this year.  

Although both the UK and the EU have recently expressed ‘openness’ to a trade deal, this internal document says otherwise.

Moreover, the WTO has recently said that there could be a ‘soft touch’ policy implemented on goods entering the UK in the event of a no-deal scenario. This policy adopts fewer checks on imports from the EU for a six-month period during the Brexit transitionary period. IF anything, this also shows a lack of optimism from the WTO over a deal too, further adding to the upside cap on GBP.

Optimism on UK no Brexit scenario

Leaving the EU with a no-deal will definitely be a negative for the UK economy as businesses will have to revisit their supply chains, imports and exports systems will be changed, the UK may have to form unfavourable deals with other countries, etc.

However, that being said, countries such as Australia and New Zealand have expressed positive optimism over a free trade deal with the UK, citing that they have been ‘preparing for this deal since the UK decided to leave the EU and welcome their agreement to commence negotiations.’

Australia is the UK’s seventh biggest trading partner, so this news comes as encouragement. Australia has said that both sides want ‘an ambitious and comprehensive agreement that builds on our already significant people-to-people links and creates new opportunities for exporters, generating more jobs in our nations.

This may limit the downside on the sterling from a falling UK-EU trade prospect.

How does this affect you?

The pound has remained relatively supported on the basis of optimism between the UK and EU, forming a deal as a result of recent comments from both parties, indicating a willingness to negotiate. Though the internal document released by Germany, suggests a lack of confidence from European members and this is likely to be viewed negatively by markets.

The pound may possibly fall sharply lower, reversing the bullish rally it has experienced on the back end of optimism over a deal with the EU. 



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