Nine months ago, Britain started shadowboxing with the EU when it voted to leave the EU in a historic referendum known as the Brexit. The period of shadow boxing is over and the battle line is drawn as Britain begins the formal process of divesting itself from the EU. Last month, British Prime Minister triggered Article 50 of the Lisbon Treaty to begin the formal process of taking Britain out of the EU.
The Brexit is one of the biggest volatility drivers in the forex markets and the global economic landscape because of its economic and geopolitical ramifications. Last year, the GBP slumped to a 31-year low to record a 10% decline against the USD to $1.33. UK’s stock market, the FTSE 100 also suffered massive losses with more than £100 billion lost in the value of shares.
Traders who have exposure to the CFD trading markets have observed that Forex trades tend to see increased liquidity in times of geopolitical jostling. The Pound and FTSE 100 are slowly recovering but fears still abound that the next two years will be highly volatile. This piece provides insight on three fault lines that traders and investors must watch as Brexit negotiations get underway.
1. A non-disruptive deal with the EU
Britain needs a Brexit deal that will help it maintain friendly ties with the EU. Theresa May must work out a deal that allows the free flow of goods, services, and people between the UK and the EU in order to sustain the lifeblood of the GBP. She also needs a deal that will minimize business disruptions – in essence, Theresa May must work towards a deal that will ensure that global firms don’t have reasons to move their headquarters away from London.
The British camp and the EU camp will definitely have reasons to disagree during negotiations; hence, you can expect the increased volatility in the geopolitical landscape as the negotiations get underway. Interestingly, there’s no sure way to measure geopolitical uncertainty but gold price movements during the negotiations could be a reliable indicator of how the talks are progressing.
2. A deal that supports a “Global Britain”
Theresa May must also walk off the negotiating table with a deal that fulfills the yearnings of the Conservative Party that she represents. Some stakeholders in her party have voiced their hopes and aspirations for the “global Britain” and she’ll need to make sure that those needs her met as she negotiate the Brexit.
A deal that supports a global Britain will be a deal that allows Britain to create its own trade policies. The deal will also empower Britain to have trade deals with other countries, and legislate on taxes and regulations within its borders.
3. A deal that preserves the United Kingdom
Last but not the least important, Theresa May must fight for a Brexit deal that makes it easier for keep the UK united. It is no longer news that a new wave of nationalism is sweeping over the Eurozone. There’s a loud clamor for independence from Northern Ireland and Scotland in UK, Catalan push for Catalonia in Spain, and the cry for an independent Flemish community in Belgium among others.
Interestingly, the UK lacks the moral right to deny or halt separatist push for independence within its borders because of the historical precedent that “Brexit” set. Hence, Theresa May’s only recourse is to push for a deal that satisfies England, Northern Ireland, Scotland, and Wales in order to silence the separatist voices calling for independence. A bad deal for Britain will only provide separatists with more reasons to push for independence from Britain.