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What’s next for the GBP?

Volatility for currency during trade negotiations

March 2020

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The UK’s EU Withdrawal Bill finally became an Act of Parliament on January 231 and the UK officially left the EU on January 31. However, that is far from being the end of the story. For the next 10 months, the EU and UK will work towards agreeing a trade deal before the end of the transition period on December 31, 2020.

Canada’s trade deal with the EU took around seven years to hammer out, suggesting the time available for the UK to work out a deal is woefully short.

What could influence currency prices?

UK Prime Minister Boris Johnson is currently adamant that he will not push the UK’s final exit past the end of this year, bringing back the possibility that Britain could end up with a ‘no deal’ Brexit by 2021. Any uncertainty triggered as a result would most likely push the pound lower, which is something to consider when transferring to or from pounds later in the year.

Key dates for pound transfers

One of the first pivotal dates for the pound in these Brexit trade discussions is the EU Summit in June, as any extension to the transition period, currently ending on December 31, may be agreed between the two sides by July2 under the Withdrawal Agreement. But the UK’s Brexit legislation effectively prevents the UK Government from asking for this. The legislation could be amended if necessary, but that would cause considerable embarrassment for the Prime Minister. There is even a chance that Brussels will dictate the extension timetable, which again adds uncertainty, and potentially raising volatility.

The rhetoric, even at this early stage, could heavily impact the value of the pound. Markets will become extremely jittery at the prospect of a cliff-edge fall into World Trade Organisation terms for UK EU trade, which would see tariffs rise considerably.

1 https://www.mirror.co.uk/news/politics/breaking-boris-johnsons-brexit-withdraw-21344104
2 https://www.telegraph.co.uk/politics/0/brexit-transition-period-2020/

This is an excerpt from the OFX Currency Outlook. Download the full report for expert commentary on current global events and their potential impact on key currencies including the pound, euro, AU dollar and US dollar.

In October, the drivers of the currency market are likely to be:

  • Overall market risk sentiment. News around the resolution or continued threat of events contributing to economic uncertainty globally, including the Evergrande crisis in China and the US debit ceiling
  • High inflation and low unemployment data, which could create urgency for central banks to increase interest rates
  • Commentary from central banks around how, and when, they might change monetary policy
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Download the OFX Currency Outlook

Learn more in the latest edition of the OFX Currency Outlook. It’s been produced to help you navigate market movements today, and to understand what to watch out for in the coming months.

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