British Pound, UK elections, and Reserve Bank of Australia

On Tuesday, the British pound fell. It occurred after reports stated that Boris Johnson, the UK Prime Minister, was seeking a hard line on Britain’s transition period after Brexit. The Australian dollar dropped on a downbeat fore from the nation’s central bank.

The pound’s one 1/3-year peak of $1.3516 on Friday looked increasingly like a near-term peak after the massive relief rally following last week’s UK election. But today, the pound dropped 0.7% to $1.3236 GBP=D4.

The UK Prime Minister Boris Johnson revised the Withdrawal Agreement bill. This bill requires the United Kingdom to arrange its departure from the European Union by December 31 next year.  These are the reports from UK broadcaster ITV on Monday.

But now this shift dashes hope that Johnson will take a flexible approach to the end of 2020 deadline for a trade deal with the EU. Now it looks as if Britain will leave the EU bloc on January 31. It is almost inevitable after the Conservatives win the election.

Chief currency strategist at Mizuho Securities, Masafumi Yamamoto, says that common sense suggests that a successful trade deal would take at least a year. Markets assume that the transition period will extend.

British Pound

Johnson’s win is enabling him to take a hard-line approach, and that is what markets dislike. Yamamoto forecasts that the United Kingdom’s economy will worsen because companies and people will start to leave the country. The cause of this is Brexit, and the sterling’s short-covering rally is over.

Down 0.3% from late U.S. levels, the pound last stood at $1.3286.

The Reserve Bank of Australia opened the door to another cut in interest rates in early February. The Australian dollar lost 0.2% to $0.6868 AUD=D4.

The central bank’s board is concerned that wage growth is too weak to revive either consumption or inflation. The evidence from the December policy meeting on Tuesday portrayed this.