Rumors in the market was the pound would rally pretty strongly in the aftermath of Boris Johnson’s election win with such a large majority, which would allow him to quickly pull the UK out of the EU, even before the deadline of January 31st next year.
He also wants to introduce a law to forbid the extension of the withdrawal terms which are set to expire at the end of 2020 which means his government has a little over a year to conclude a trade deal with it’s European counterpart.
Mr Johnson is working on amending the withdrawal agreement to eliminate the possibility of an extension and is expected to put the measure to a vote by British lawmakers by the end of the week.
Some analysts say if the move passes parliament, it will put the UK in an almost impossible position to conclude a trade deal within this time frame and the economy and British pound will suffer as a result.
“Boris’ proclamations that he can get the post-transition relationship between the U.K. and the EU resolved within 11 months are rather fanciful,” said Seema Shah, chief strategist at asset manager Principal Global Investors.
“We have not only struggled with this conversation for more than three years, but no two major countries have ever achieved a trade deal in under three years.” He said.
The pound hit as high as $1.35 as a result of Johnson’s election win as the prospect that the UK will finally be able to leave the EU swept the country which to many culminated in the end of years of uncertainty and the predictions that one of Europe’s biggest economies would now power ahead.
The British currency is currently sitting below the $1.31 mark which is where it was before Johnson’s election win which shows the novelty of the election win has quickly worn off.
“With the level of frothiness in positioning, I think people had priced in this very smooth sailing throughout 2020,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.
“This has given us a snap back to reality. If you thought Brexit was solved and we’re going to see very, very smooth times ahead, then that’s not quite going to be the case.” He added.
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