GBP Slammed On Boris Johnson Hardline EU Stance
GBP slammed as attention turns to UK/EU trade negotiations.
GBP was slammed on Monday after UK press reported that UK PM Johnson will set out a “hard-line” stance on post-Brexit trade talks with the EU, in which he will reportedly say there is “no need” to accept various EU rules and regulations and will be prepared to walk away from negotiations if he is not happy with the deal.
On Monday, both the EU and the UK outlined their negotiating mandates for the future relationship, with the EU placing emphasis on two “at least” conditions for any free trade deal.
Firstly, any free trade deal must involve level and fair playing field (defined as “common high standards” in State Aid, competition, social & employment, environmental standards, climate change and tax, as defined by the European Court of Justice). Secondly, any free trade deal must give the EU continued access to UK fisheries.
As expected (given the weekend reports), UK PM Johnson confirmed that the UK would not be signing up to any EU rules and standards, which has pretty much been interpreted as a “no” to the EU’s idea of a “level and fair playing field” (the rules of which would essentially be determined by the EU”).
So why is GBP being slammed so hard?
GBP performed solidly at the end of last week after the BoE was less dovish than expected, but many traders (including us) saw this as an opportunity to get short, as they expect UK/EU trade tensions to weigh on GBP in 2020. So, in part, this move may be seen as somewhat of a correction.
With the UK and EU still miles apart in terms of what they want out of the future relationship, it is hard to see where middle ground can be found. As the clock ticks towards the UK's self-imposed year-end deadline to agree on the future UK/EU relationship without any progress, we expect the downside pressures on GBP to build. After-all, market pricing will need to reflect the ever-increasing risk of a no-deal exit to the transition period, something which most economists see as potentially catastrophic for the UK economy.