GBP Exchange Rate Supported Ahead of Official Exit
The Pound (GBP) is trending higher this morning, maintaining its gains from yesterday’s Bank of England (BoE) rate decision as markets brace for the UK’s official exit from the EU later this evening.
At the time of writing the GBP/USD exchange rate is trading at around $1.3113, while the GBP/EUR exchange rate is trading at around €1.1890.
Pound (GBP) Supported as All Eyes on PMs Speech
On the UK’s final day inside the EU, markets appear to be turning bullish on the Pound (GBP).
This is likely in part due to the relief that after three-years of uncertainty GBP investors will now have a little more clarity on what Brexit will actually mean for the UK, in light of Boris Johnson’s withdrawal deal.
The PM appears characteristically upbeat about the UK’s prospects outside the EU, and is expected to strike an optimistic tone in a speech marking the UK’s exit from the EU.
Johnson will say later this evening:
‘The most important thing to say tonight is that this is not an end but a beginning. This is the moment when the dawn breaks and the curtain goes up on a new act. It is a moment of real national renewal and change.’
What Will GBP Investors Be Looking Out for in the Months to Come?
Initially very little will change for the UK as it takes its first steps outside the EU, as the UK enters a transition period, during which time it will continue to abide by EU regulation and goods will continue to flow freely between the UK and the continent.
But this doesn’t mean we won’t see some volatility in the Pound, with GBP traders likely to remain cautious as the UK and EU enter the second phase of negotiations in March as they try and hammer a new post-Brexit trade agreement.
A key test for GBP exchange rates will be whether or not Johnson sticks to his guns and refuses to extend the transition period past December.
EU officials have repeatedly expressed the scepticism that a comprehensive trade deal can be reached before then and this leaves a clear risk of a no-deal Brexit at the end of the year, the threat of which could limit any upside in the Pound moving forward.
However, it won’t just be the EU and UK trade talks which will be in focus for GBP investors as the UK looks to broker deals with other countries as well, most notably the US.
There are already concerns that talks may already be off to a bit of a rough start however, with the UK government’s decision to allow Huawei to be involved in the roll of its 5G network irking some in the White House.
This may result in some turbulence in the Pound in the months to come if preliminary trade talks between the UK and US show little sign of progress.