The British Pound has fallen against its major peers as investors believe that the trade negotiations between the EU and UK will collapse and result in a no deal Brexit.

David Frost, the UK's chief negotiator, said to Parliament’s Brexit committee that the EU needed to change its position in order to reach an agreement that suits both sides. He told committee chairman Hilary Benn: “It’s their call.”

He also reminded MPs that the government did not intend to extend the transition period. As a result, the pound dropped, with the chances of a soft Brexit now looking increasingly slim. Frost said that Prime Minister Boris Johnson will be meeting in June with leaders in Brussels to try and push trade negotiations along.

Reiterating the rhetoric of hard Brexiters, Frost said that the EU was still grappling with the issue of Brexit: "The EU is still coming to terms with the fact that there's a large country in Europe that doesn't want to be part of the EU's structure in some way, or to work on EU norms, or to relate to the EU as the reference point of its activity.” However, as a Financial Times article put it, it is Brexiters who “still do not understand Europe,” arguing that the UK is “owed” privileged access and that Europeans are treating them “beastly.”

Pound to react to no-deal Brexit

Erik Norland, Executive Director and Senior Economist of CME Group, said that the pound fell against both the Euro and the US Dollar as the two sides reached an impasse regarding the “lack of progress on issues ranging from fishing rights to business-competition regulations." Norland highlighted the pound’s volatility in regards to Brexit:

"Since the referendum, GBP has tended to rally when it looked like a deal was close (+21% versus USD into early 2018 as then Prime Minister Theresa May held negotiations) and tended to sell off when Brexit appears to be headed towards the “no-deal” scenario (-16% when May’s deal was repeatedly defeated)."

He clarified that as we move into the next round of negotiations, GBP options markets are more tilted to the downside. He added: "Moreover, most of the recent spikes in both implied volatility and risk reversal have been motivated by concerns over the progress of Brexit negotiations. The one exception occurred during an incipient dollar-funding crisis in mid-March. After the U.S. Federal Reserve stepped in, that issued was resolved quickly.”

Brexit

As economists attest, the British currency’s volatility will continue and is expected to remain reactive to Brexit headlines, especially through June when the deadline for the UK and the EU to agree to extend the Brexit talks is due. The markets will react favourably to an extension, while the possibility of an impasse and no extension to the December transition deadline will lead to a drop in the pound.

The pound is also expected to react to next week’s final round of negotiations.

As we move closer to Brexit deadlines and Brexit-related news, the pound will continue to be sensitive. If you are worried about currency exchange and the value of the pound when transferring your hard-earned money overseas, get in touch with Universal Partners and their dedicated foreign exchange specialists. You can discuss your currency needs, get the best exchange rates and navigate the uncertainty that lies ahead. Do not let Brexit impact your currency transfers, maximise your currency potential with UPFX.

After over three and a half years of talking, fighting, delays and fearmongering, Brexit is going to happen on 31st January.

This is a cause for celebration for some, but for others it represents the start of great uncertainty – or worse still – the start of decades of decline for the UK. This may come down to the deal that we agree, or if there is a deal at all.

Which way it goes will still be debated and argued over the years to come, but what will happen after 31st January when Brexit is confirmed?

The Brexit deal

Firstly, let’s take a look at the key points of the deal itself. Currently being examined by the House of Lords, the main issues involve travel, money, health, the rights of citizens and of course, trade. The policies set out in the deal will potentially affect currency which can then further impact such things as property prices.

The main focus of the deal is to leave the EU customs union, meaning that the UK will have the freedom to establish their own trade deals with countries around the world.

A significant sticking point was determining how Northern Ireland would be affected, with Boris Johnson eventually replacing the Irish backstop with a new agreement that will begin in December 2020, after the transition period has ended. In summary, this includes a customs declaration system for goods travelling from Great Britain to Northern Ireland, as well as continued access to the UK market for businesses. Northern Ireland also have the option to vote on their continued membership in this deal four years after the transition period.

Travel

After January 31st, travel plans for UK citizens travelling to EU countries will not be affected.

ABTA, the travel industry’s trade association has said: "If Parliament ratifies the Withdrawal Agreement before 31 January 2020, which it is on track to do, the UK will enter a transition period, meaning everything will remain the same and you can continue to travel as you do now until at least the end of December 2020."

After the transition, a visa similar to the American ESTA will be introduced, expecting to cost around £6 and last for a number of years.

All transport entering the EU, including ferries and cruise ships will not be affected but there may be an additional driving permit if you wish to use your own vehicle within your UK insurance policy in the EU.

Money

Savings are not expected to be affected after Brexit due to all bank trading agreements bought from EU firms being protected by the transition period. There may a short-term gain for savers if interest rates are increased when the Conservative Budget is announced next month.

However, British retirees living abroad may have their pension payments frozen, not benefiting from the EU payment increase, which is based on either inflation, wage increases or 2.5% - whichever is highest. On top of that, those living in the EU and being paid in GBP may lose earnings if the pound falls after Brexit.Property

With house prices showing an increase from November to December last year, estate agents are optimistic that Brexit will finally end the uncertainty that had led to prices stagnating – and falling in some areas - in the UK.

Even with renewed confidence, the February Budget could affect the market, with the potential for reforms for first-time buyers. No-deal is still a slight possibility, so foreign investors will be keeping a close eye on negotiations before parting with their money.

Most estate agents say that surveys have shown that potential buyers generally have overestimated the impact of Brexit so far, and with the political climate much calmer, expect buyers who were holding back to come forward in 2020.

Rental prices are forecasted to rise, due mainly to the lack of rental options on the market.

Currency

The value of the pound can go either way, with a lot of experts claiming the volatility of the past 3 years will calm and the pound will be more stable. Since the start of negotiations, the strength of the pound has been linked to a clean break that protected business, whereas the chaos of a no-deal Brexit has sent the pound down in value. Since the general election result, the pound has rallied due to investors being more comfortable with the prospect of a strong majority Conservative government.

However, with a lot to be done by the end of the transition period – including crucial trade agreements with the EU itself – there could still be choppy waters ahead for GBP. In fact, just this week it was revealed that there are fundamental disagreements between the EU and UK that will almost certainly require more than eight months of negotiations, which formally begin in March.

Trade negotiations

The obvious reason for any difficulties in the negotiations is that the EU believe that the UK should continue to follow some of the EU regulations in order to secure a free-trade agreement. This is mainly due to EU members, including France, asking for a level playing field to be maintained. Trade-offs will likely come into play as the transition period progresses, with a report recently claiming that the UK will allow EU fleets to fish in their waters if bankers and financiers are allowed favourable access to the EU financial markets. The issue with such trade-offs is that invariably they will affect certain demographics unfavourably, which can lead to more stand-offs. With such a tight deadline any significant delays could be disastrous and can bring the no-deal prospect back into the reckoning.

If you require any guidance on your currency exchange during this crucial step of Brexit, reach out to Universal Partners FX; a specialist in delivering expert guidance and the best possible rates for those dealing with foreign currency.

What is the World Trade Organisation

The World Trade Organisation (WTO) can be seen as a number of different things. The first is a global organisation that deals with and monitors the rules of trade between nations, the second is a forum for governments across the world to negotiate trade agreements, and finally, it’s a place to settle trade disagreements. At the epicentre of the WTO lies the WTO agreements, which are negotiated and signed by the majority of the world’s trading nations and endorsed by their parliaments. The ultimate goal of the WTO is to ensure that trade between these nations flows as ‘smoothly, predictably and freely as possible.’

So, when was the WTO created? The World Trade Organisation was formed as a result of the 1986-94 negotiations known as the Uruguay Round negotiations and earlier negotiations under the General Agreement on Tariffs and Trade (GATT) which was established by a multilateral treaty of 23 countries in 1947 after the second World War. At the Uruguay Round negotiations, talks were aimed to extend the trading systems between nations into several new areas, most notably in services and intellectual property and to reform trade in the sensitive sectors of agriculture and textiles. With the final act officially establishing the WTO regime being signed 15th April 1994, known as the Marrakesh Agreement.

Functions of the WTO

Despite the WTO being driven by its member states, there’s no way that it would be able to function without its Secretariat to coordinate and organise the activities which are to be carried out. The Secretariat is made up of over 600 members of staff, including experts in law, the economy, statistics and communications, all of whom assist WTO members on a daily basis to ensure negotiations are conducted smoothly and that rules of trade are correctly applied and enforced. Functions include:

  • Trade Negotiations – WTO agreements cover goods, services and intellectual property. These spell out the principles of liberalisation and the exceptions that are allowed. They consist of individual countries’ commitments to lower customs tariffs and other barriers of trade and to open and keep open services markets as well as setting the procedures for settling trade disputes. These agreements, however, are not static. They are renegotiated from time to time where new agreements are added to the package.
  • Implementation & Monitoring – WTO agreements require governments to make their trade policies clear by letting the WTO know about laws in force and measures adopted. A number of WTO councils and committees ensure that these requirements are strictly followed and that agreements are properly implemented. Each member of the WTO must undertake occasional scrutiny of their trade policies and processes, each review containing reports by the member state concerned and the WTO Secretariat.
  • Dispute Settlement – To ensure that trade between member states of the World Trade Organisation runs smoothly, it is vital that the procedure for resolving trade quarrels are enforced accordingly. Countries bring their disputes to the WTO if they believe their rights under the agreements are being violated. Independent experts are appointed to make judgements based on interpretations of agreements and individual countries’ agreements.
  • Building Trade Capacity – WTO agreements include special provisions for developing countries such as measures to increase their trading opportunities, longer time periods to implement agreements and support to enable them to build trade capacity. The World Trade Organisation organises hundreds of technical cooperation missions to developing countries every year. Aid for Trade aims to assist developing countries to develop the infrastructure and skills needed to build their trade.
  • Outreach – In order to enhance cooperation and increasing awareness of various WTO activities, the World Trade Organisation conducts regular dialogue and communication with non-governmental organisations, parliamentarians, the media and the general public.

All of these activities are performed for a number of reasons and to achieve several goals, including:

  • Non-discrimination between trading counties
  • Enabling trade to be more inclusive with lowered barriers
  • Creating predictability and transparency of trade to encourage investment
  • Increasing competitiveness
  • Providing an advantage for developing countries
  • Protecting the environment

For more information on the World Trade Organisation, who they are, what they do and what they stand for, be sure to visit the official WTO website below.

World Trade Organisation >