Top Trade Idea 2020: Short EUR/GBP – Sterling to Rise as Brexit Uncertainty Fades After UK Election
The election of a clear majority government in the UK after years of Brexit deadlock won't make all the nation's considerable economic and social difficulties disappear but it does remove uncertainty as to what the British Brexit policy will be. This is likely to see overseas investment return to Sterling. Prime Minister Boris Johnson could be a lucky man with the numbers too, with his victory coming as much of Europe, and notably Germany, battles with a marked economic slowdown. Whatever the rhetoric from Brussels, European Union member states won't want to lose such a key customer as the UK at a time when trade disputes with both China and the US are already casting clouds over other key export markets.
Given that the UK will uniquely start trade-deal negotiation from a position of full compliance with EU rules, a deal could be made relatively quickly even as the UK branches out to attempt deals with other nations such as Japan, the US and Australia. With Brexit uncertainty gone, and the UK more likely than ever to get what it wants out of negotiations with the EU- a substantial trade deal and regulatory autonomy- this looks like a good time to stay long of sterling even though, of course, the diplomatic road is likely to get bumpy at times.
--- Written by David Cottle, DailyFX Research
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