Daily Management Review

Experts forecast months of volatility for the Pound sterling due to Brexit


09/03/2018


The pound sterling dropped below $ 1.29 on Monday after the Brexit strategy of the British Prime Minister Theresa May was criticized by both the European Union and her own party. As each side warns about the risk of hard Brexit, investors are becoming increasingly sensitive to news of the withdrawal of the kingdom from the bloc.



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"It's quite difficult for the markets to understand that this is political noise and how much it really affects likelihood of a transaction," said Pacific Investment Management Co. (PIMCO) managing director. 

British Minister for Brexit Dominic Raab acknowledged that the deadline for concluding a deal could be moved from October to a later time. More and more often there is talk of an extraordinary summit between the UK and the EU in November.

The conclusion of the Brexit deal in autumn is considered extremely important in order to give the British and European parliaments enough time to ratify the agreement before Britain leaves the block.

The official withdrawal of the UK from the EU is expected to take place on March 29, 2019.

The EU's chief negotiator on the withdrawal of Britain from the bloc, Michel Barnier, said in an interview with Frankfurter Allgemeine Sonntagszeitung on Sunday that he was against May's proposals for future relations of the kingdom with the EU.

Brussels is interested in maintaining a single market, and Britain cannot simply choose the spheres in which it wants to participate, Barnier said.

Prominent members of the Conservative Party also continue to oppose the negotiating position of the Prime Minister. Rumors about the problem of leadership again arose before the annual conference of the party, which will be held this month.

If the conference does not shake May's position, the focus will be on resolving the issue of the Irish border, which, according to Barnier, remains the main problem in the negotiations. Against this background, the indices of the pound sterling's volatility are growing.

In the event that the Brexit agreement is reached by the end of the year, the pound sterling will strengthen, it will also provoke the sale of UK government bonds. In the absence of a deal, there will be a sharp drop in the pound sterling. Negotiating the deal will only lead to a gradual increase in the pound, as the details of the agreement have yet to be finalized, said PIMCO.

All this and the likely slow passage of the Brexit bill through parliament makes it difficult for investors. Faced with a high level of uncertainty, many fund managers prefer to take a wait-and-see attitude. 

source: bloomberg.com






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