wisepowder: The Vulnerable Sterling
The Vulnerable Sterling
Recently, the sterling suffered a sharp loss in the wake of the fact that the UK-EU trade talks are teetering on the brink of collapse. It comes because the UK is preparing to legislate to deal freely with Northern Ireland's freight under the expectation that a trade deal with the EU is beyond reach. Once it succeeds, products from Northern Ireland will have unfettered access to the UK's market without any customs declarations as the UK has the power to decide which goods are subject to EU tariffs, but the EU's subsidies involving Northern Irish firms may not be active.To get more news about WikiFX, you can visit wikifx official website.
However, the above term is a breach of last year's Brexit deal, in which it was agreed that Northern Ireland would remain aligned to EU customs rules to avoid a hard border on Ireland. This was an important concession of the UK at that time, and the largest difference between the two parties was thus resolved. But now, the EU is likely to take legal actions over the UK's breakdown of the deal since an angry backlash has been provoked by Johnson, the British Prime Minister, who simply overrode the achieved deal after anticipating a failed negotiation.
Over the past few months, the sterling has been gaining although there was no progress made in trade negotiations. The stalemate over the talks surprisingly sparked a rise in the sterling both because of the weak greenback and the expectation of financial markets on further negotiation. This time, however, the U.S. dollar has reclaimed its strength and the talks shall most probably break down. Currently, financial markets are worried about not only the Brexit with no trade deal, but last year's Brexit deal would all be overridden. That is, not just a trade deal is beyond reach, but a clean break from Europe is even possible, which will lead to a sustained sell-off of the sterling. Although there is a chance for US stocks to bounce back and again hamper the DXY, traders seem extremely worried that the UK would eventually adopt such hard Brexit. Thus at this stage, the sterling is not only out of momentum in the rebound, but may even struggle in panic selling. Unless a UK-EU agreement is achieved dramatically, the sterling is almost certain to be thrust into a vulnerable position.