Sterling fell sharply in early trading on Tuesday, after Prime Minister Boris Johnson moved to introduce legislation to ensure the post-Brexit transition period isn’t extended beyond the end of 2020. This revision to the Withdrawal Agreement Bill would create a hard deadline in negotiations and raises the risk of a ‘no-deal’ Brexit.
ITV (LON:ITV) News reported late on Monday that Johnson will legislate to block any further Brexit delay and that the revised Withdrawal Agreement Bill is expected to be put before MPs on Friday. EU negotiators are sceptical that a comprehensive trade deal can be negotiated within the 11-month time frame between the scheduled Brexit on January 31st and December 31st 2020.
Assuming Brexit takes place at the end of January, during the transition period the UK will remain in the EU’s single market and customs union but it will not be represented in the EU’s decision-making bodies. Currently, the transition period can be extended for up to two years if both sides agree.
Last week GBP/USD rallied to 19-month highs after Boris Johnson’s Conservative Party won a decisive victory in the UK general election, gaining a majority of 80 seats. However, amid the renewed threat of an exit from the EU on World Trade Organization (WTO) terms, cable has lost all its gains since Thursday night's exit poll indicated a majority victory for the Tories.
Looking at the GBP/USD daily chart we can see price has fallen to the 23.6% Fibonacci retracement level and that trendline support currently lies below at 1.3087. The market now looks to Thursday’s Bank of England (BoE) meeting, where the Monetary Policy Committee is expected to hold interest rates at 0.75 per cent.
