What Could A No-deal Brexit Mean For Sterling?

Sterling is facing renewed pressure as trade negotiations between the UK and the European Union become increasingly contentious, making the prospect of a deal being reached before the end of the UK-EU transition period on December 31 less likely than ever.

The Calm Before The Storm

Despite rampant political speculation about the UK’s relationship with the EU, sterling has thus far remained relatively immune. This is partly due to the US dollar’s significant weaknesses, which have caused it to plummet against other major currencies over the past few months in light of the COVID crisis.

Additionally, many currency traders may not have fully accounted for the risks of a no-deal Brexit and continue to believe that a deal will ultimately be reached before December 31.

A Lack Of No-Deal Planning

This lack of preparation for a no-deal scenario could result in a swift and devastating impact on sterling if trade talks were to collapse. Parity with the euro is now a possibility, and while dollar parity isn’t currently on the table, the pound could sink as low as $1.10-1.15.

This would also have significant implications for the UK government’s debt management, as COVID-19 has forced them to take on enormous amounts of debt to support the economy. So far, they have been able to borrow at incredibly low or even negative interest rates.

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