Sterling retreats from post election…

GBP

Sterling fell back down to earth on Tuesday, erasing post-election gains after Boris Johnson signalled a harder line in Brexit talks. There were hopes that we would see an end to the Brexit uncertainty with a strong Conservative majority in Parliament, but this come back to the fore as we now face a possible cliff-edge scenario. Johnson has effectively stated that unless the EU gives the UK a comprehensive free trade deal by the end of 2020, the UK will exit without a deal.

Despite the rhetoric, Johnson does not appear to favour a hard exit and he hopes that this position will enable more compromise. The problem is that most experts believe that a comprehensive trade deal with the EU will take years, fuelling market fears that there is a distinct possibility that there could be a disorderly Brexit under these terms. British factory output also fell at the fastest pace for more than 10 years in the quarter leading up to the election.

Key Announcements

08.30 – EUR: ECB President Lagarde Speech.
09.30 – GBP: Consumer Price Index (YoY) (Nov); expected to fall to 1.4% from 1.5%.

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