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The SA Daily 13 July 2018

Brexit should be soft

Shireen Darmalingam

  • The UK PM Theresa May published the blueprint for Britain’s exit plan from the EU yesterday; the white paper confirmed an intended soft exit. Sterling rose on expectations that the policy document would assist negotiations between the EU and Britain when it leaves the bloc in March 2019. The core of the plan is for a free-trade area for goods with the EU. The proposal would give the UK the flexibility to strike trade deals around the world. The plan includes a complex plan to keep Britain inside the bloc’s customs territory and maintain “frictionless trade” in goods and services between the UK and EU. Brexit Secretary Dominic Raab said that such regulatory flexibility would matter the most in the services sectors for both current and futures trading opportunities.
  • Our G10 Strategist Steven Barrow sees a relief rally in the pound once a deal nears conclusion. However, the exact nature of a deal and, in particular, the disadvantages to the UK, could see sterling weaken over time, even if the market responds positively. He sees the pound facing shakier times in the coming months, with a rise to a 0.90-0.95 trading range for euro/sterling a real possibility. At the time of a final Brexit deal, he’d expect euro/sterling to head to 0.80-0.85 over likely the next year or two (see report Where now for sterling? of 10 July 2018 by Steven Barrow).

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