Pound Lifts on Brexit Deal Hopes and Lifting of French Blockade
On Wednesday, sterling firmed after falling for three days because of hopes of a post-Brexit trade deal saw a boost despite discouraging comments and a partial border blockade imposed by France for curbing the spread of a fast-spreading new coronavirus strain was lifted. There is no trade deal in sight, even though the United Kingdom will exit the European Union’s orbit in just eight days. There have been an array of conflicting signals, which variously indicate that the talks have a long way to go or a deal is imminent. This week, the pound has been thoroughly pummeled as new rigorous shutdowns were imposed across Britain for combating the new strain of the COVID-19 virus.
Plus, many countries had also taken the decision of shutting off freight and travel from the United Kingdom because of this new strain. However, once France lifts the blockade, trucks that have been stranded at the border will begin to depart Britain. The French-UK supply chain restrictions will soon go back to normal and the market is convinced that a deal will be made soon, as only the fisheries hurdle remains, which will once again boost the pound across the board. However, analysts predicted that volatility would remain on the high side due to increased uncertainty over the Brexit deal.
Sterling had climbed by 0.3% by 0952 GMT against the dollar at $1.3420, which brought it down from an earlier high of $1.3442. In fact, it had gone quite low on Monday at $1.3190. The pound was 0.2% up against the euro and was trading at 90.82 pence. The implied volatility of the pound is extremely high as opposed to other developed currencies, as the overnight volatility remained higher than 25%. The European Union and Britain have repeatedly said that they are quite optimistic about a deal being made.
However, Michel Barnier, the chief negotiator for the European Union, termed the latest offer of the UK on sharing the fish catch as completely ‘unacceptable’. A British minister also claimed that there were a lot of unresolved issues. Meanwhile, the pound will continue to suffer not just because of Brexit uncertainty, but also because of the damaging shutdowns imposed due to the virus. If there is no trade deal, the Bank of England will be forced to cut down the interest rates sub-zero, which will be another blow to the pound.
On Wednesday, the British government will decide whether they need to impose stricter coronavirus restrictions on other areas of the country, as the highly infectious new variant of COVID-19 continues to spread. The Confederation of British Industry also called on the government for additional support for businesses, as there was a huge decline in business activity after COVID-19 restrictions had been tightened in the previous month. According to a motor industry body, there was additional decline in the UK car production last month, which means that its output has declined by a third up till now.