GBP/USD drops to 1.3100 as the risk of hard Brexit flares again on Tuesday

on Dec 17, 2019
Updated: Mar 11, 2020
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  • PM Johnson says that he doesn’t have any plans of extending the post-Brexit transition period.
  • As per the current Brexit bill, the transition period ends in December 2020.
  • GBP/USD dropped sharply on Tuesday following the announcement and posted a daily low of 1.3100.
  • As per the analysts, 11 months are not sufficient for the two parties to strike a workable trade deal.
  • Johnson's move is directed at fast-tracking Brexit that enables the UK to sign new trade agreements with the rest of the world.

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GBP/USD had printed fresh new highs in the forex market over 1.3500 level following Conservative Party’s victory in the UK’s general election last week. As of Tuesday, however, the upward rallies have faded away as the currency pair lost over 1.50% earlier today. Cable is currently trading around 1.3130.

As per the sources, PM Boris Johnson announced on Tuesday that the British government doesn’t have any plans of extending the post-Brexit transition period. Since the decision will give a very small time for the European Union to decide on a trade deal, the risk of a no-deal Brexit has flared again, as of Tuesday.

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The Transition Period As Per The Brexit Bill Ends In December 2020

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As per the current Brexit bill, the United Kingdom is set to depart from the European Union on January 31st, 2020. The bill further highlights that the European Union will not be given any extension over the transition period that ends in December 2020.

Following the announcement, the media has started asking questions if the renewed government under PM Johnson is pushing the UK towards a hard Brexit. As per many of the British analysts, the period of 11 months after Brexit is far from sufficient for the two parties to strike a workable trade deal.

Sterling started losing traction in the forex market late on Monday. Extending the drop on Tuesday, GBP/USD recorded a daily low of 1.3100.

The United Kingdom will be subject to EU laws throughout the transition period. However, it will have no representation in the decision-making bodies of the European Union. Provided that the UK and the EU agree, the transition period is currently flexible enough to be stretched for as long as two more years.

Speedy End To The Transition Period May Be In The Best Interest Of The UK

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PM Johnson’s move, as per the experts, is directed at fast-tracking Brexit that has already weighed on the global financial markets for over three years. It was also highlighted that fast-tracking comes with its own set of advantages for the UK. Following Brexit, the United Kingdom will be free to sign trade deals with countries across the globe. The agreements, however, won’t be able to go live until the transition period is over.

It is also worth mentioning that the other countries are likely to keep the UK’s trade relations with the EU as a standard against which they’ll plan their own agreements with the United Kingdom. A speedy end to the transition period, therefore, will open new horizons for the UK to sign trade agreements with the rest of the world.

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