Brexit Flight: A Hard or Soft Landing?

UK Prime Minister Theresa May will trigger Article 50 of the Lisbon treaty on Wednesday March 29, starting the 2-year Brexit negotiation process with the EU. The EU leaders will hold a summit on April 29 to adopt Brexit guidelines.

There are three possible situations for the negotiation process: soft Brexit, hard Brexit, or failing to achieve any agreements. In the third situation, trade between the UK and the EU must be carried out per the World Trade Organisation (WTO) clauses.

The EU is unlikely to make it easy for the UK to leave, in order to prevent other EU member states from leaving the EU following Brexit. Downward pressure is still on GBP and GBP crosses until the outline of the final Brexit deal draft is clear. Thousands of protesters in the UK marched, on March 25, against Brexit.

The UK government have a list of issues that need to be negotiated with the EU such as; a new post-Brexit trade agreement, tariff, transportation, financial services, fishing waters, and reducing the number of EU immigrants entering the UK etc.

The EU is the UK’s biggest trade partner with the two economies being highly interdependent over the past decades. The EU and the UK must manage to minimize the Brexit impact and reach balance between their own interests.

Theresa May aims to get the best Brexit deal with access to the single market and a new trade agreement with minimised trade barriers. The EU economy is highly tied up with UK financial services it is therefore also crucial for the EU to maintain its access to London’s financial sector.

After the UK leaves the EU, the UK will be able to retrieve the control of its borders, jurisdiction, and diplomacy. The UK will be free to sign trade agreements and develop a tighter relationship with other economies such as the US and China. In addition, the UK will get rid of the financial burden of the EU annual membership fee.

The Scottish parliament will vote on whether to hold a second Scottish independence referendum today, which is only one day ahead the triggering of the Brexit process. If the result is to hold a referendum, the proposal will be delivered to the UK parliament for voting. In this situation, it will pose more political uncertainties on the UK’s economic prospects and the value of GBP.

GBP/USD hit a 7-week high of 1.2615 on Monday, mainly because of the slump of USD, be aware that the GBP crosses will likely to be volatile with the proceeding of Brexit.