The UK is highly likely to leave the European Union without a deal. The majority of market participants are betting on such an outcome, especially after the statements of European officials. On Friday, European Commission President Ursula von der Leyen hinted at such a possibility. The pound sterling may hit the bottom amid the possible negative outcome of the long-lasting Brexit saga. The British currency ends the week with big losses, given that a couple of days ago, bulls were trying to push the pound sterling above the psychological level of 1.35.
Boris Johnson and Ursula von der Leyen have announced a new deadline – Sunday evening. Before this time, the negotiators must reach an agreement or at least resolve the main issues, e.g. fisheries and level playing field. It is unclear whether these could be resolved. If the parties fail to strike a deal, the divorce will end rather painfully for the UK and EU.
In the event of a no-deal Brexit, the parties' trillion-dollar trade turnover could be subject to WTO rules. In other words, the countries will suffer losses due to tariffs. The volume of mutual trade will be sharply reduced, and the profits of companies on both sides of the channel will collapse.
A no-deal Brexit will seriously affect the pound sterling, which has already sunk in recent sessions. It could fall even deeper. Currently, its decrease is halted by the weakness of the US dollar.
Over the past 2.5 years, the GBP/USD pair has pulled back from 1.35 five or six times. In August, the pair reversed considerably plunging to $1.27.
"Situation is difficult. Main obstacles remain. The probability of a no-deal is higher than of a deal," the official said. To be seen by Sunday whether a deal is possible," the EU official said. Until then, we can only guess how the negotiators will finish. Monday will be a busy day for the pound sterling.
Meanwhile, most investment banks have not changed from previous forecasts and continue to believe in the conclusion of a deal since both sides will benefit from it. Some investors recall how poorly prepared Wall Street and London were for the 2016 referendum. At that time, few people admitted the possibility of Brexit and eventually it happened.
According to Oliver Dowden, Secretary of State for Digital, Culture, Media, and Sport, there is still a chance of an agreement. The official believes in a positive outcome. Notably, Dowden was just as optimistic in 2016 when he voted to remain in the EU.
The Governor of the Bank of England warned that there is a limit to the regulator's ability to avoid all disruptions or volatility in financial markets after Britain's Brexit transition period ends at the end of December.
Experts are curious about the trajectory of the EUR/GBP pair. It is trading below the 0.9000 level. However, it rose above 0.9200. It is clear that its movements have been determined by the Brexit news. However, a chaotic withdrawal will affect Europe too, which means that the euro may also incur losses.
The EUR/USD pair managed to reach a new high. Maybe the GBP/EUR pair will gain ground as well. The pair seems to head for the all-record high of 0.9500.