Brussels has once again voiced their dedication and willingness to cooperate with the United Kingdom in order to strike a Brexit deal as the deadline inches ever closer, being just 2 weeks away.
This may actually be the very last chance that both the European Union and the United Kingdom get in order to outline what their cooperation will be like once the UK is out of the Union.
Commitments spark markets
Naturally, as any other Brexit announcement has had some effect on the financial markets, this commitment has also inspired thousands of bullish traders to dive back into the GBP curve.
The Sterling has been taking major hits during the year, being one of the hardest pressed currencies in the world, and we’re considering some with the highest inflation.
Not much should be expected
Even though this recent announcement has sparked some kind of activity with the majority of traders, we should not expect anything sensational coming from the retail sector. That’s right, the majority of retail traders are most likely going to employ other means of generating an income with the new bullish GBP.
You see, anticipations are so high that many traders simply dont find the available leverage with regular FX brokerages enough to meet their standards, which is why they’re forced to switch to other options, namely Contracts for Difference, or CFDs as they’re better known.
The European Union does not allow leverage of above 30:1 for CFDs on FX, but the UK has a much lighter approach. What this would technically mean is that UK traders can outperform their EU counterparts, right? Well, not really.
The main idea of CFDs is that the person is not actually trading the actual asset, meaning that they are not participating in the market movements. Essentially, the person does not own that asset that they’re trading as a CFD.
What this means is that the opposite could occur. EU traders could potentially overtake UK traders and bring the GBP even further down due to simple market movements. The only thing that could keep the GBP stable right now, is a continuation of these talks and a very active institutional sector from London.
Why is a deal so important?
Needless to say, the United Kingdom needs a deal more than the EU needs it. The bottom line is that the EU would see an increase in price for things like plastic, textiles, and chemical products.
Although these goods seem very important for a thriving economy, they’re actually no. The EU still has thousands of other offers where it could get a similar deal on prices.
The reason why the UK needs a deal though is pretty much everything else. It’s already known that the UK is not self-sufficient, it needs imported goods to feed its population and provide all the necessary goods. The current commitments it has with the EU allow that to go on smoothly. A no-deal Brexit could mean delays in shipments, a massive hike in prices, and a depreciation of the GBP.
What this means is that the quality of life will decrease significantly, or will become simply unaffordable for the majority of the UK’s population.
And it’s not that it’s a matter of circumstance. The UK has pretty much shot itself in the foot when it comes to doing business and building its economy. It did indeed become the financial center of the world through London as well as a business operations hub, but it never committed to being a manufacturing giant, thus making it vulnerable to such disruptions in market movements.
Can a deal be struck?
One thing we definitely know is that the European Union is open to negotiations once again. It needs to display both compassion and strictness in order to keep the majority of its member states in line.
Should the European Union agree to too many concessions, then what’s the point of being in the EU if the UK gets everything without paying the membership fee?
It is quite obvious that the UK will be losing the stability it had during its membership, the only question is how much it will be losing.
But it doesn’t take an economist to say that, the EU will not agree to any handouts. It is in their best interest to display to their member states that, leaving the Union comes with serious economic consequences that are simply not worth it.
No matter how we look at it, the UK will be an example to countries like Hungary and Poland, who have been a bit rowdy over the past few years, to help them see what being outside of the EU truly means economically. And considering that these countries are democracies, it would be in the leaders’ best interest to keep the economy strong, so that they can keep their supporters happy.