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Strong media reports suggest that the British government under Boris Johnson is likely to make it illegal to further extend the transition post-Brexit period beyond December 2020.
During the early trade on Tuesday, December 17, pound sterling fell more than 1% as several media reports suggested that U.K. Prime Minister Boris Johnson pledged to not delay the Brexit transition period by the end of 2020.
As per the Bloomberg report, Johnson’s planned legislation will have a legal text that prevents the British government from further delaying the day when Britain disconnects itself from the EU laws, even if no new trade terms are secured in the stipulated time period.
As one now, U.K is likely to leave the EU by January 31, 2020. Last week, Prime Minister Boris Johnson was re-elected with his government winning the polls with a thumping majority. The recent reports have raised concerns about Britain moving towards a harder Brexit under PM Johnson.
Thus, if the implementation of the new legislation comes in the picture, it will leave a maximum of 11 months transition period. This transition period is a time when the EU and the U.K. can negotiate a trade deal. During the 11-month transition period, EU laws continue to be applicable to the U.K.
The news of Johnson passing a law for no further extension of the transition period has caused ripples in the market. The value of pound sterling fell over 1% to $1.32 against the USD.
The Slipping Value of Pound Sterling
The recent slipping of the pound value has erased all the gains of the last week when PM Johnson was re-elected. This news has also caused concerns in the global market with analysts predicting further pound uncertainty. Elsa Lignos, global head of currency strategy at Royal Bank of Canada, said:
“In practice, it would erode all the positives of a large Tory majority and bring us back to the previous position of pound uncertainty rising rather than falling next year. If passed, it would mean further pound downside that should be apparent by January.”
On the other hand, the Australian Dollar also fell another half percent with its central bank agreeing on another cut in interest rates by February 2020. As the wage growth remains too weak, the central bank has expressed its concern and is working out ways to revive inflation and consumption.
“The Aussie is weaker on the back of the mode dovish than expected RBA minutes. That said, market expectations of a Phase 1 U.S.-China trade deal could limit the currency’s downside in the near term”, Valentin Marinov, head of G10 FX strategy at Credit Agricole, told Reuters.