The Pound Likely To Grow Weaker During Boris Johnson’s Tenure As British Prime Minister
The Brexit issue has been a major topic of conversation in the European region but also globally, and its impact on trade is already evident. It has particularly hurt the British Pound. Above all, Theresa May decided to relinquish her position as Prime Minister after failing to secure a Brexit deal.
May has been replaced by Brexit evangelist Boris Johnson, and this gave rise to concerns that his appointment as the new British Prime Minister will negatively affect the GBP. The currency dropped to $1.2474 immediately after his ascension to the leadership position was announced. However, it seemed to recover after that.
Johnson has been one of the pro-Brexit politicians in Britain and is determined to make sure that the U.K. is no longer part of the European Union even if that means exiting without a deal. Many believe that a no-deal Brexit will be bad for the Pound’s performance.
The Pound hit hard by the Brexit talks
To put things into perspective, the GBP traded close to the 1.50 level against the USD in 2016 before the Brexit vote. The GBP/USD currency pair was trading just below the 1.25 level on Wednesday.
Wednesday's performance indicates a strong overall bullish trend, but there are concerns that Johnson's tenure as the British Prime Minster especially with a hard Brexit will continue to weaken the Pound.
"The risk of the U.K. leaving without a deal is going up by the day. There's this ... magnet drawing sterling lower, just because time is shortening,” stated UBS head of rates strategy, John Wraith.
The British National Institute of Social and Economic Research (NIESR) released a report earlier this week through which it noted that the next Brexit vote on October 31 has a 40% chance of no deal.
Wraith also believes that the scales currently tip in favor of a Brexit deal, a smoother exit from the E.U. with less of an impact as far as trade is concerned.
A dark cloud of uncertainty continues to hover over the Pound
Analysts, including those from Morgan Stanley, believe that there is a high likelihood that the Pound will continue to drop. They estimate that the GBP will drop close to the $1.00 level and they are convinced that this will be the case if the politicians fail to secure a deal.
There is still a likelihood that the price of the currency pair will range between 1.10 and 1.20 even if Johnson manages to negotiate with the E.U. Nonetheless aggressively, this means that analysts still expect a decline.
So far the Pound lost a significant chunk of its value against the US dollar this year due to the unyielding Brexit talks.
Analysts and traders are concerned that the upcoming few weeks will continue to be tough on the Pound, especially as uncertainties continue to mount over how things will turn out. Boris currently has a small window of opportunity to try and come up with a workable deal that will be good for the U.K.'s economy.