FUNDAMENTAL ANALYSIS
Britain sets a countdown clock of two years to negotiate its exit terms with the remaining 27 EU member states.
How these negotiations unfold will impact upon the pound sterling. Of particular importance to Britain is its future trading relationship with the EU and how that will affect economic growth.
Britain’s future trade with the EU
One area which negotiations will centre around is the new trading relationship that Britain will have with the EU.
We already know what Britain’s position will be here. Teresa May recently announced that the UK would not seek to maintain its membership of the European single market aſter the completion of Brexit. Tis ‘certainty’ may have actually helped GBP recover a little ground against the US dollar.
But the volatility of the pound ever since the EU referendum suggests that it is futile to get excited over such news.
In fact, over the long-term, it remains to be seen what effect any new trading relationship would have on British business. Tere’s a broad consensus amongst trade deal experts that
Britain will not get the market access it currently enjoys as an EU member, meaning British businesses could be subject to EU trading tariffs. Others suggest that Britain is too an important customer to the EU for significant penalties to be imposed.
Te truth is, nobody knows what Britain’s future trading relationship with the EU will look like. At the moment, it’s all just conjecture. Tat’s
single market) would
FX
leaving the EU (and by extension the
have
greatly damaged British businesses. However, at the time of writing, Brexit has actually helped British exporters. This is because a weaker pound has made it cheaper for other countries to import Britain.
goods from
But trouble could be ahead in regards to future trading arrangements. It might be more difficult for Britain to secure a trade deal on its own due to its market size, which is, of course, a lot smaller than that of the EU.
Britain the US
and
One such trade deal that Britain hopes to pursue is
why monitoring the negotiations in the coming months takes on significance.
British businesses will also have the challenge of adapting to new regulatory frameworks outside of the European Union. Again, we’re yet to discover what these might be.
The impact on trade so far
Let’s consider some facts. Britain’s largest trading partner has been the EU for a significant amount of time.
So it’s reasonable to assume that with the US.
Although an enthusiastic supporter of Brexit and the UK, President Trump’s protectionism could make it difficult for the UK to acquire a favourable trade deal with the US.
President Trump himself has expressed a desire to secure transatlantic trade deals with the UK, but his slogan ‘hire American, buy American’ casts doubt on this promise. Would President Trump be so eager, in all reality, to secure a trade deal with the UK if he is committed to only ‘buying American’?
FX TRADER MAGAZINE April - June 2017 29
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