Daily Management Review

Strategist says if Britain Resorts to WTO Trade Rules Post-Brexit, Sterling Could Face Binary Implications


02/04/2017




Strategist says if Britain Resorts to WTO Trade Rules Post-Brexit, Sterling Could Face Binary Implications
A strategist at BofA Merrill Lynch is of the view that the complete impact of the U.K. and European Union (EU) failing to reach a trade agreement and the subsequent influence on sterling are being underestimated by investors.
 
Thanos Vamvakidis, head of European G10 FX strategy at BofA Merrill Lynch, says that there can be potentially binary implications for sterling against the dollar due to the resultant ramifications of a transitional trade agreement between the U.K. and the EU either falling through or eventually being agreed.
 
"(That is) extremely important and I don't think the market is focusing enough on this issue…" Vamvakidis said.
 
"The Brexit negotiations will take two years (and) we know that the new trade agreement between the U.K. and the EU will take much longer. Usually it takes seven to ten years, (look at the) Canada deal with the EU which took seven years."
 
Britain could be left at the mercy of and be completely dependent on the World Trade Organization (WTO) rules if British Prime Minister Teressa May decided to walk away from the EU with no trade agreement deal, something that she has previously indicated that she would be willing to do.
"No deal for Britain is better than a bad deal for Britain," she had argued in a speech on Jan 17.
 
"You need something in the interim period, a transition agreement. Without it you go to the WTO rules, this is why agreement transition or not has binary implications… if you have an agreement then we can see cable well above 1.30, if you don't it can go as low as 1.10," Vamvakidis argued.
 
"Without a transition, you don't have just a hard landing; you have an over-shooting because the WTO rules are much worse than any possible trade deal. This is why we believe it is in the benefit of both sides to avoid the WTO cliff and have an agreement and a transition period," he concluded.
 
After the U.K. parliament voted overwhelmingly in favor of starting the formal two year negotiation process with the EU, Brexit passed its first legislative hurdle on Wednesday. Prime Minister Theresa May's self-imposed April deadline to begin divorce talks with the bloc could be met as the passing of the legislation could allow Britain to set to complete the legislative process by March 7.
 
Against the dollar to $1.24 in lunchtime trade on Friday, the sterling added to losses in the previous session to fall 0.2 percent lower. After the Bank of England raised its growth forecasts for the U.K. economy and announced it would be keeping interest rates unchanged, the British pound continued to skew lower.
 
(Source:www.cnbc.com) 






Science & Technology

With China Set To Dominate, 1 Billion Could Be Using 5G By 2023

Deutsche Telekom unveils next gen 5G mobile antennas in Europe

Diamonds are now the new gold

Expert Body Says Driving In A Driverless Car In An Inebriated Condition Or On Drugs Should Be Legalized

SEC’s EDGAR database vulnerable to cyber threats

Research Says The Risk Of Severe Turbulence On Planes Will Increase Due To Climate Change

Barclays and CLS Group aim to replace SWIFT with blockchain

Designing Of Cars Being Done With Hologram Goggles At Ford

The Already Surging Cyber Attacks Are Set To Rise Even Further, Says A Study

Chinese to equip smartphones with OLED displays

World Politics

World & Politics

Scholar Says Political Appointees Not As Important As Financial Ones In China For The Economy

An Expected Change In Brussels Could Be Crucial For The Euro Zone

Destroying People Who Wouldn't Help One Of His Bankrupt Businesses Was All Trump Talked About When He Met Him In 1990s: Branson

Russia Is Worried About America’s Unpredictability

No oil contracts with Iraqi Kurdistan: Iraq’s oil ministry

Donald Trump lost $ 600 million during his presidency

Britain puts its weight behind Europe in the battle between Boeing and Bombardier

EU hopes to keep the Iran nuclear deal afloat