Already in June last year, it was clear that the future of the pound will be marked by uncertainty and high volatility after the June 23 when 51.9% of Britons were in favor of UK leaving European Union. The process of secession is long and exactly as described in Article 50 of the Treaty of Lisbon. The very fact of Brexit has been already discounted now investors wonder how will UK leave the EU.
The so-called hard Brexit is probably the blackest scenario for Britain. Although the lack of a clear definition for both hard Brexit and Brexit in a “light version” (soft Brexit) it is known that the lack of willingness to discussions between London and Brussels and the restriction on the free movement of persons by the British will lead to a rupture of relations between the Isles and Continental Europe.
What does this mean for both economies? Currently, trade relations between the UK and Europe are based on the principles of the single market. There is no duty on the borders, and borders themselves are treated in a completely different, less rigorous way than the borders of the European Union with third countries. Preventing the UK access to the single market will make trade between London and the Continent more difficult according to the principles of the World Trade Organization (WTO). In this scenario, once again we hear about mass moving out of Citi, which will suffer most as a result of border closures.
Investors are strongly afraid of hard Brexit, and the new Prime Minister of Great Britain is already known for its tough stance on secession. Tomorrow, Tuesday 17 January, Theresa May is to give a speech on the future work on Brexit. The British press has already predicted over the weekend that May will remain steadfast and intends to bring to leave the European Union by Britain, even if this would result in the loss of access to the common market.
The market reaction to the news reports turned out to be allergic, already on Sunday evening, there were reports of early trading talking about sizeable gap on the pair of pound. GBP/USD opened below the low of flash crash from October – just below the level of 1.20. During the sluggish Asian session the pair reached the 1.2060 area, but with the impending start of trading in Europe, more and more cable declined:
