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New Brexit Proposals Cause Concern For UK Forex Investors

The pound sterling fought back to a high position on the currency markets last week but financial experts state that this is just a brief surge that is covering up the problems that the British financial markets are bound to face in the coming months.

Strategists at the Bank of America Merrill Lynch recently outlined their facts on what could hurt British financial markets as Brexit approaches.

In a statement, Vadim Iaralov, a quantitative strategist at Bank of America Merrill Lynch said

FX options investors are now pricing-in greater downside risks for GBP after several cabinet members resigned over Brexit negotiations. Given political Brexit turmoil, GBP skew has moved for puts. EUR/GBP skew is rising and leading spot on the way up. This is a GBP bearish signal, in our view.

These comments topped off a week that saw the British government battling over the details of Brexit negotiations. Prime Minister Theresa May recently put forward a set of proposals that she says will finalize Britain's exit from the European Union. However, many of her critics are saying that these proposals will do more harm than good for the economy.

The proposals that May put forth have the UK integrating parts of the EU's custom union rules, while also keeping many UK products still under the purview of EU's Commission and Court of Justice. Additionally, the UK will still be under many of EU's regulatory bodies and EU citizens will still have freedom of movement.

Financial Times

Prime Minister May Going ‘Too Soft’

These are the opening positions that the UK government have put forth in their attempt to negotiate with the EU over the exit from the Union. However, these proposals are thought to be too ‘soft’ by Brexit supporters who have threatened to bring down the May government and have Labor's Jeremy Corbyn take over at 10 Downing Street as Prime Minister.

Additionally, if these proposals for a ‘soft Brexit’ fail, then only the ‘hard’ option is left. This can potentially mean an economic slump for the UK which will hurt the UK’s financial growth and also negatively impact investors who have backed the pound sterling. While the possibility of a ‘hard Brexit’ is a last resort, financial markets continue to be impacted by the short-term chaos that these Brexit negotiations present. The uncertainty has forex experts flagging the pound as potentially heading to disaster, with many saying that increased volatility will soon be on the horizon.


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