Long GBP traders appear to base their investment decision on headlines, despite continued uncertainties as to the future relations between the UK and the EU. The recent news suggests that the Northern Ireland Party, which continuously opposed May’s Withdrawal Agreement, would finally back May’s Brexit plan, however with one condition: a time limited or the complete removal of the Irish backstop. Therefore, the recent Sterling optimism remains highly misplaced, as the EU already confirmed it is not willing to provide further concessions.
Indeed, despite a higher likelihood of seeing the British Parliament supporting a postponement of current Brexit deadline next Tuesday (separation due in 63 days), and extensively supporting a softer Brexit looking forward, worries from companies implanted in the UK is rising. In the worst-case scenario, UK-exported products ruled under World Trade Organization agreements would be subject to a 10% tax, costing along 4 – 7 % of car manufacturer’s yearly operating profits present in the region, forcing them to close existing plants and move to EU shipping compliant countries.
Accordingly, although a disorderly Brexit remains highly unlikely, we would therefore remain cautious on long GBP positions, since the risk of a setback is very likely. Currently trading at 1.3082, GBP/USD is expected to head along 1.3015 short-term.
