British Pound Rallies as EU-UK Reach Brexit Deal

British Pound Rallies as EU-UK Reach Brexit Deal

  • The worst case scenario ‘no deal, hard Brexit’ will be avoided just days before the December 31 deadline.
  • The “Canada-style” free trade agreement ensures no tariffs or quotas.
  • UK and individual EU country parliaments must still vote on the deal.

Brexit Deal Finally Reached as Deadline Approaches

The EU and the UK have officially reached an agreement on the terms of a Brexit deal today. The deal prevents a “no deal, hard Brexit” situation in which the UK would have left the EU with no trade deals in place, a scenario that would have been damaging to both economies. While precise details of the trade agreement are still unknown, the worst case scenario – an immediate increase in tariffs and trade quotas — has been avoided.

The deal comes as the culmination of four years of planning and negotiation. In June 2016, UK citizens voted in a referendum to leave the EU. This vote set in motion a lengthy withdrawal process, involving three different UK prime ministers, delays, and deadline extensions. The final deadline for Brexit was set as January 1st, 2021, and today’s deal comes just in time to avoid an uncertain exit.

In a press conference this morning, UK Prime Minister Boris Johnson noted the deal as covering £688 billion in trade per year.

  • He described it as a comprehensive “Canada-style” free trade deal, with no tariffs or quotas imposed on goods sold by the UK in the EU market.
  • The UK has retained sovereignty over domestic law and the European Court of Justice will no longer have jurisdiction in the UK. Johnson said the stimulus from new regulatory competition as a result will benefit both the UK and the EU.
  • He also declared that the UK is once again an independent coastal state with full control of its waters. Fisheries were a major point of contention during the negotiations, and the deal has the UK’s share of fish claims rising over the next five years.

Chart Prepared by Izaac Brook, Source: TradingView

While the announcement of a deal majorly reduces uncertainty, questions on its substance remain. The full text of the deal has not yet been published. The UK and EU Parliaments must still vote to approve the deal. The GBP strengthened yesterday as news of a deal seemed imminent. However, since the announcement, the Pound has weakened. Further reactions in the Pound might be seen once the full text of the deal is made public.

— Written by Izaac Brook, DailyFX Research

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