Thursday, June 13, 2024

The Effects of Brexit: Negotiations Causing Turbulence for Markets

The financial effects of Britain’s impending exit from the EU have been followed closely, as watchers of the market try to determine whether it can survive what is a turbulent time in the UK. Both the Sterling and the FTSE 100 have echoed the political instability, in the almost 2 years since the initial vote to leave.

Take a look back on some of the key moments in Brexit up until now, and their implications on the market.

The Initial Break

June 2016 brought the shock decision from UK voters to break away from the European Union. The Sterling would dip as a result, with many concerned about the disruption exit talks would bring. While the FTSE would hit lows after the vote, it would recover in the weeks following.

Comments by French President François Hollande in October of that year lead to a flash crash of the pound. GBP-USD would trade in 9.72% weekly range (high-to-low), yet the FTSE 100 rebounded by 3.52%.

The pound would go on to rebound slightly, trading 3.6% (low-to-high) in January 2017, following Theresa May’s speech setting out the government’s 12 priorities for Brexit talks.

2017’s General Election

UK PM May made the decision to call a June 8 election, attempting to make a stronger position for herself in negotiations. The election backfired, as May’s Conservative party was unable to form a majority as a result of the vote. GBPUSD would trade in a 3.12% weekly range (low-to-high), while the FTSE 100 fell 3.64% in a week.

Progress in Negotiations

The House of Commons vote on the EU Repeal Bill went through in September 2017, signaling progress in Brexit proceedings. In late 2017 talks would move on to the second phase of negotiations, causing the GBPUSD to jump by 7.85% over the following six weeks, while the FTSE 100 remained stable.

Turbulence in 2018

New directives from the EU27 lead to a drop of 4.42% over six weeks for GBPUSD, and an 11.70% skid for the FTSE 100 over the same time. This would last until March 2018, when GBPUSD hit a 22-month high on the back of agreed dates for a transition period. At the same time, the FTSE 100 grew 15.53% over 2 months, reaching its all-time high at 7,903.

GBPUSD markets would go on to drop 9.87% as talks began to stall.

A big milestone in Brexit proceedings came in June 2018, with the EU Withdrawal bill passing. At this time, the FTSE 100 would continue to hold its strong position, while GBPUSD continued a downward trend.

The FTSE 100 turned and dipped sharply from its strong position in late 2018, as the UK hurried to try and push a deal through. Theresa May presented a draft agreement on November 2018, which was met with largely negative sentiment and criticism. A vote on the deal, planned for December 11th, would be called off.

Both the FTSE 100 and GBPUSD would close 2018 in a weak position, as a result of continued uncertainty. Both have rebounded thus far in 2019, but the inability to settle on a deal before the March 29 deadline continues to case a dark cloud over the markets.

Brought to you by Daily FX

Elliot is the Editor at ABCMoney. He manages a team that writes and contributes to many leading publications across a number of industries.

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