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Brexit Briefing: UK PM Johnson Expects Trade Deal by Year-End

Brexit Briefing: UK PM Johnson Expects Trade Deal by Year-End

Martin Essex, MSTA, Analyst

GBP price, Brexit news and analysis:

  • The British Prime Minister, Boris Johnson, said Tuesday that a comprehensive trade deal with the EU is “enormously likely” by the year-end.
  • However, after Monday’s poor UK GDP data, GBP/USD traders need to focus on the growing chances of a UK interest rate cut.

GBP/USD weak as attention turns to UK interest rates

UK Prime Minister Boris Johnson remains bullish on the prospect of a trade deal with the EU by the end of 2020. However, for now, GBP/USD and the Sterling crosses will likely move near-term in line with interest rate expectations as the chances rise of a rate cut early this year.

UK economic data released Monday showed that the economy expanded by just 0.6% year-on-year in November, the weakest growth since 2012, while month-on month it contracted by 0.3%. That inevitably raised the prospect of a UK rate cut, with market expectations suggesting that a quarter-point reduction from the current 0.75% later this month is now almost as likely as the rate being left unchanged.

UK interest rate expectations.

Source: Thomson Reuters Eikon

Speaking to the BBC, Johnson said it is “enormously likely” there will be a trade deal with the EU by the end of 2020. However, traders need to watch rate expectations ahead of the next meeting of the Bank of England’s monetary policy committee that ends on January 30 and check whether the prospect of a rate reduction is fully priced in to the markets, which the table above suggests it has not yet been.

In the meantime, GBP/USD has already dropped below the psychologically-important 1.30 level and a further fall cannot be ruled out, with the December 23 low at 1.2905 a possible first target.

GBP/USD Price Chart, Four-Hour Timeframe (December 11 – January 14, 2020)

Latest GBP/USD price chart.

Chart by IG (You can click on it for a larger image)

We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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