What’s next for GBP after UK election?

Summary:

• Conservatives easily secure a majority after the general election
• The second reading of the Withdrawal Bill likely to take place next Friday
• After striking a Brexit deal next month a transitory period will start till the end of 2020
• The election’s outcome GBP-positive in the short-term, much less joy in the longer-term

The UK general election was held in order to break a deadlock the House of Commons and the European Unions were embroiled in, and it appears that the election was successful enough for Boris Johnson to make Brexit finally done next month. Having counted votes from 648 out of 650 constituencies one may say that the Conservatives reached a sweeping victory getting as many as 363 seats while only 326 seats were needed for a majority. By securing a clear majority Johnson got another chance from the British people to end the more than three years old Brexit saga once and for all. So, what happens next?

As UK media already reported, there will be no major changes in a new-old government after the election and a serious reshuffle could take place after Brexit. As a result, the second reading of the Withdrawal Bill is expected to be held next Friday (20th), and if the House of Commons agrees to terms put forward by Brussels we may have a major obstacle removed. It would pave the way for Brexit in January 31. Subsequently, a transitory period will begin and is likely to last until the end of 2020. During this time, London and Brussels will be working on a new comprehensive trade agreement for the future. What does all that mean for the pound? As everybody can see, the pound has benefited from the election’s outcome because it moved us forward to get rid of an uncertainty factor weighing on the British economy. Although it sounds GBP positive in the short-term, we do not think it will be something good for the UK economy in the long-term (much will depend on a new trade agreement) and we reckon the British economy would have been better-off if Brexit had not happened at all. To sum up, taking into account that the GBPUSD has gained more than 10% (EURGBP has fallen roughly 10% too) since August we doubt that much space left for further gains.

The EURGBP has approached its crucial long-term support, hence we think it may find it hard to push much lower. Moreover, the Eurozone economy could benefit from the election’s results moving us forward to get a Brexit deal finally done. Source: xStation5