Pound falls as Brexit woes begin again

Denise Jackson

The British pound slumped on Tuesday as newly re-elected Prime Minister Boris Johnson appeared to use his new-found power to insist on new hard position against the EU.

Johnson, whose Conservative Party was re-elected Thursday with a large majority, said that he will seek to enshrine in law that the government has no right to ask for an extension to the transition period planned for after Brexit.

The aim is supposedly to ensure that a trade deal is secured over the course of 2020, rather than later.

However, the financial markets responded badly to this news, as it brings the possibility of a no-deal Brexit back on to the table if a deal cannot be reached.

The pound was down by 0.7% in its pair with the US dollar at one stage, which effectively cancelled out the gains it had made once the election result was announced last week.

It reached $1.3236 at one stage, which was a far cry from the position of $1.3516 which it saw last week once the result was made public.

The formal date for leaving the bloc with the agreed deal is now looking likely to be 31st January, but the crucial date now is when the transition period will end – and that appears to be in flux.

Opposition Labour spokesperson Sir Keir Starmer, who is considered a frontrunner to run to lead the party, called Johnson’s decision “reckless and irresponsible”.

Elsewhere around the world, the big area of focus in the forex markets was the trade deal which was tentatively agreed last week between two of the world’s largest economies, the US and China.

This deal, announced on Friday, appeared to at least suggest that the end was in sight for the battle between the two nations – which has dragged on for almost three years.

The “tit for tat” nature of the deal means some US tariffs on Chinese items will go down.

In return, China has committed to buying some more goods from the US.

However, there are still precious little details about the wider range of developments on the cards, and what they might mean for the global trading world.

As a result, currencies were not moving hugely.

The US dollar was trading at around 109.56 against the safe haven yen, which represented a very marginal rise of just 0.05% on trading the day before.

This suggested that markets were still not wholly convinced that the trade war is firmly over.

The Japanese yen tends to do well during times of economic turmoil, especially when it is related to trade.

However, the broader picture for the US dollar is still good.

It rose by 0.15% against the yen as forex trading for the week began and was spotted close to its highest point in six months on 2nd December – at 109.73.

The single European currency managed to hold firm against the dollar.

It was spotted at $1.1147 at one stage.

On the whole, this currency is rising – and has enjoyed a positive trend in recent days.

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Denise Jackson
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