Not that it ever went away but the focus in the pound has now shifted back to the Brexit quandary after the UK election
- UK Press - PM Johnson will guarantee Brexit by end of 2020, trade deal or not
- Brexit: EU warns Boris Johnson over tough trade talks to come moving forward
- The two major risk factors in markets for 2019 will still be there in 2020
- A look beyond the UK election for the pound
The pound may still be somewhat reeling from the election result last week but there's still the distinct possibility that the change in the UK political landscape will do little to ease Brexit worries and most certainly not eliminate the threat of a no-deal Brexit.
As such, this will continue to pose a major risk for pound buyers as we look towards next year - despite the fact that the election result may help with business and investment sentiment for a few months at least (which is still no guarantee by the way).
The fact remains that Johnson continues to rule out extending the transition period beyond the end of next year. As such, if negotiations between the UK and the EU about the future trade relationship blows up, a no-deal Brexit becomes the likeliest outcome.
That will continue to leave an air of Brexit uncertainty surrounding the UK and I don't see how that will help to give businesses and investors any major confidence when things can easily turn for the worse at any point in time during the next few months.
In looking at the pound outlook going into next year, the catch here is to gauge market sentiment towards the whole Brexit situation.
In particular, how quickly will the market shift its focus from "election euphoria and smooth Brexit agreement by 31 January 2020" to "realistically trade talks cannot be completed by the end of next year and we may get a no-deal Brexit" instead.
As I have highlighted before, it took the Canada and EU seven years to iron out a trade agreement and an extra year to ratify/implement it. Johnson wants all of this done in just about eleven months. Wishful thinking?
I'm sure there will be a lot of issues that can be more easily facilitated given the current UK-EU relationship but eleven months? It's not really an improbability but an impossibility.
I'd like to be surprised and if they manage it, the upside for the pound can be rather tremendous. But I'm still gonna chalk this one to a 'extremely unlikely' scenario for now.
