EDUCATION CENTRE

2 August 2019

Boris Johnson, Brexit and the Price of the GBP

While Boris Johnson's election by the Conservative Party as Prime Minister was expected, the repercussions for the Pound Sterling, Euro and other financial currencies will be difficult to predict. Mr Johnson has made it clear that under his leadership Britain will leave the European Union before or on the 31st of October - deal or on deal.

Johnson’s can do and “crash through” mentality has the markets nervous. While the Pound’s price rose after Johnson's election was confirmed, it is fair to say that his success had already been factored in by the market - a market that is becoming increasingly worried about the prospects of a no deal Brexit.

For his part, Johnson appears undeterred pledging to unite a divided country and work to renegotiate a deal with the European Union that is satisfactory to both parties. The optimism is not shared by the EU who while acknowledging his victory and signaling their preparedness to work with him have indicated that there will be no renegotiation. That appears to be a stumbling block for Mr Johnson and would leave him little alternative but to pursue a hard Brexit outcome.

Most analysts agree about a hard no deal Brexit would be catastrophic for both Britain and the European Union.

Amazingly, three years after the Brexit referendum was held, all Brexit options remain possible. Prime Minister Johnson’s options include calling a snap election where, if he were to win, would allow him to pursue a Brexit strategy of his choice, however, if he were to lose the prospects of a fresh referendum and Britain remaining in the EU would soar.

Market analysts have predicted three possible futures for the GBP. These are based on various differing scenarios. The current price of the Pound is hovering around $1.25 USD. Its movement over the next six months or so will be reliant upon one of these scenarios:

  • Scenario 1: If a snap election resulted in an increased conservative majority and a hard Brexit, the Pound would be likely to fall further with some analysts projecting it falling possibly as low as $1.15 or lower.
  • Scenario 2: If Labour were to win a snap election and negotiate a soft Brexit, the Pound would most likely rise to around the $1 30 Mark.
  • Scenario 3: If Johnson were to agree to a second referendum and the Remain vote was to win, the Pound could rise to $1 40.

To complicate matters for the new prime minister, his government has a wafer-thin majority, with some government supporters clearly stating that they would have no hesitation in bringing the government down, should a no deal Brexit be the chosen course. On the other hand, the government is currently reliant upon a block of pro Brexit Northern Ireland votes to pass legislation.

How the situation plays out will depend largely on Prime Minister Johnson's political skills and his commitment to his stated policies. Market analysts are watching the announcement of his cabinet portfolios to ascertain the level of hard brexiteers included in the ministry. This will be seen as the first concrete indication of the Prime Minister's intentions moving forward.

With so many variables in play and so much uncertainty it is very difficult for the Forex Trader to make decisions with confidence trading either the Euro or Pound Sterling. By using USGFX as a trading platform, the trader will be kept up to date with the latest news affecting the prices of both currencies. Join USGFX today and we’ll provide you with a free signal to help you make the right decision. You can make use of our state-of-the-art trading platform, quality information and continued education on all things Forex- experience the USGF advantage today.

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