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.