Why the pound didn't skyrocket on news of the deal?
If yesterday was a semi-holiday day, today is a full one. Merry Christmas to all our readers. But for the British apart from Christmas there is another reason to be happy - a trade deal between the EU and the UK. The parties reached an "agreement on zero tariffs and zero quotas."
But the pound reacted to this yesterday without significant growth. Let's figure out why and what to expect from him it in the nearest future.
To begin with, the most likely scenario actually happened, leading analysts estimated it at 80%. Accordingly, it has already been largely incorporated into the price. If someone has forgotten, we remind you that in May the pound was worth 1.21, and last week it reached 1.36. 1500 points of growth (partially due to the weakness of the dollar), but this is the discounting of the markets for the deal.
Plus, the treaty still needs to be ratified. And after months of nervous negotiations, many do not fully believe that from January 1, 2021, the EU and the UK will not use the WTO rules.
Also, do not forget that the trade agreement is only part of the picture formed by Brexit and many of its elements are very unattractive for the UK economy (The Bank of England said that even with a trade deal, the UK's gross domestic product is likely to be hit by 1% because of the Brexit in the first quarter of 2021). The massive exodus of bankers and financiers from London, which risks ceasing to be the financial center of Europe, the transfer of production facilities by a number of manufacturers to Europe from Britain. Even trade agreements between the EU and the UK, despite the success of the negotiations, will change for the worse: food safety regulation and exporting rules to product certification will change. And there are only a fraction of the price that Britain will have to pay to exit the EU single market.
In total, the upside potential of the pound is more than limited. At any moment, the attention of traders may switch to the pandemic situation in Britain, lockdowns and the country's economy in the foreseeable future, and then the only option that they will consider is selling the pound.
So, we think current pound prices is an excellent selling opportunity. And thanks to the deal, that we can now sell not at 1.32, but at 1.36.
But the pound reacted to this yesterday without significant growth. Let's figure out why and what to expect from him it in the nearest future.
To begin with, the most likely scenario actually happened, leading analysts estimated it at 80%. Accordingly, it has already been largely incorporated into the price. If someone has forgotten, we remind you that in May the pound was worth 1.21, and last week it reached 1.36. 1500 points of growth (partially due to the weakness of the dollar), but this is the discounting of the markets for the deal.
Plus, the treaty still needs to be ratified. And after months of nervous negotiations, many do not fully believe that from January 1, 2021, the EU and the UK will not use the WTO rules.
Also, do not forget that the trade agreement is only part of the picture formed by Brexit and many of its elements are very unattractive for the UK economy (The Bank of England said that even with a trade deal, the UK's gross domestic product is likely to be hit by 1% because of the Brexit in the first quarter of 2021). The massive exodus of bankers and financiers from London, which risks ceasing to be the financial center of Europe, the transfer of production facilities by a number of manufacturers to Europe from Britain. Even trade agreements between the EU and the UK, despite the success of the negotiations, will change for the worse: food safety regulation and exporting rules to product certification will change. And there are only a fraction of the price that Britain will have to pay to exit the EU single market.
In total, the upside potential of the pound is more than limited. At any moment, the attention of traders may switch to the pandemic situation in Britain, lockdowns and the country's economy in the foreseeable future, and then the only option that they will consider is selling the pound.
So, we think current pound prices is an excellent selling opportunity. And thanks to the deal, that we can now sell not at 1.32, but at 1.36.
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