The Pound has almost given up all of its election exit poll gains as Boris looks set to take a hard line on the UK Brexit transition period.
Mr Johnson is expected to use his new majority to pass a bill which forbids any extensions to the planned transition period beyond the end of next year. This would leave trade negotiators with only 11-months to strike a new trade deal or risk the UK moving into WTO terms with the EU (aka a hard Brexit).
This has surprised many in the market as some traders felt that his new large majority might have meant that he takes a more softened stance to the negotiations. Many analysts feel that 11-months is not enough time to arrange such a deal and therefore uncertainty has increased and the Pound has suffered a reality check after such a short-lived reprieve.
That said, it’s possibly too early to get overly pessimistic as the trade negotiations are yet to properly kick off. Furthermore, it can be argued that the overall structure of a deal has been laid out and a lot of things will remain the same after the split. However, with the pound failing to break the higher technical levels after the election swing, it seems that any further gains will now be constrained and the election highs may represent the top of the new range in the short-term. Brexit headlines, along with some technical moves, will likely be the main driving forces for the Pound in the near-term.
As a result, the Pound is down over 2-cents against both the Euro and the USD since Friday. Eyes will now move over to Thursday’s Bank of England interest rate meeting to see if any of these political developments have changed any of the policymakers positions.