Pound returns election profits after new no deal uncertainty
The currency lost value against the euro after British media reported that the British government wanted to add a clause to the Brexit law, which would set the duration of the transitional period after the Brexit. The reporting creates uncertainty, because the clause would cause a dreaded no-deal Brexit if there is no trade agreement between the United Kingdom (UK) and the European Union (EU) by the end of December next year.
Currently, both parties can still choose to extend the deadline by the end of December 2020 by a maximum of two years, but the Johnson government clause would remove this option.
The EU and the UK must then conclude a trade agreement within twelve months, if they fail, the British will leave the EU without agreement.
Michel Barnier, chief negotiator in the Brexit dossier on behalf of the EU, has already said that it is unlikely that both parties will be able to reach a trade agreement within a year.
As the no deal scenario will hit both UK and EU economically, investors are not happy with the clause. The British pound lost nearly 2 percent in value against the euro since the election results on Friday. Where you paid a small £ 0.83 for a euro on Friday, that is £ 0.845 on Tuesday.
Ironically, the pound rose to its highest point since July 2016 against the euro since last week, as the large election profit of the Johnson Conservative Party seemed to put an end to the uncertainties that the Brexit brings.
On Friday the British House of Commons votes on the Brexit law that officially removes the British from the EU. Due to the conservative election victory of the Conservatives, Johnson is not expected to have any problems driving the law through the House of Commons. On December 12, his party won an absolute majority of 365 seats.