FX.co ★ GBP weighed down by hard Brexit scenario

The landslide victory of the Conservative party in the UK general election propelled a short-term rally of the national currency. However, the euphoria was followed by a sober assessment. Analysts share the gloomy outlook for the pound sterling. Indeed, the Tories’ thumping majority granted the British Premier “an unlimited mandate” to arrange the UK’s departure from the EU, thus increasing the chance of a hard Brexit. Boris Johnson forges ahead with the idea to meet the Brexit deadline on January 31, 2020. Besides, he has to settle a trade deal with the EU on a tight schedule. The policymaker is sure to gain support from his party fellows. In December, the House of Commons passed the withdrawal agreement by a wide margin with 358 voting for and 234 against. Now, the bill rules out any extension to that deadline. The scenario of a no-deal Brexit deals a blow to the pound sterling. Since the second half of December, the sterling has been extending weakness against the US dollar. Importantly, the withdrawal bill includes a provision for the priority of the domestic law over the EU law. This also signals a hard Brexit as Boris Johnson aims to insist on his terms in the negotiations with Brussels. His tough stance is certainly bearish to the pound sterling.