If the UK-EU trade negotiations fail, the pound may fall by 5%

If the UK and the EU fail to reach a trade agreement, as a market barometer of the tortuous four-year course of Brexit, the pound may fall by 5%.

According to a Bloomberg survey of nine strategists, the pound/dollar may fall to US$1.25 by the middle of next year. The chaos of Brexit will exacerbate the economy that has been frustrated by the new crown epidemic. At 06:43 London time on Tuesday, the British pound was little changed against the U.S. dollar at $1.3212.

“The prospect of a no-deal Brexit will still lead to a sharp depreciation of the pound, and the already fragile British economy will be hit, but there is no large-scale fiscal stimulus to respond, and it is likely to cause the Bank of England to adopt negative interest rates,” Monex Europe’s foreign exchange analysis Teacher Simon Harvey said.

If a trade agreement is not reached, the new trade barriers and quotas will bring more difficulties to enterprises. The British economy is already under pressure. Compared with any other G7 economy, British economic growth is further below the pre-crisis level.

However, the results of this survey are not as pessimistic as the data collected in a similar survey in June, when respondents expected that if no agreement was reached, the pound would fall to $1.18. A survey in August 2019 showed that GBP/USD will fall to 1.10 USD, the weakest level in more than three decades.

Sterling investors have been nervous this time. They have pushed the pound up by about 2% this quarter, even though there is not much time for the UK and the European Parliament to approve any agreement before the end of the transition period on December 31. As negotiations continue, the volatility bet next week has climbed.