(The writer is editor-at-large for finance and markets at Reuters Information. Any views expressed listed here are his personal) By Mike Dolan LONDON, June 26 (Reuters) – With no silver lining within the Brexit cloud weighing on sterling, November’s U.S. presidential election is now rising as one more potential drag on a much-unloved British pound. Regardless of temporary bursts of optimism in 2017 and after final 12 months’s British election, speculators have been down on the pound because the nation voted to go away the European Union in 2016. The COVID-19 shock to the financial system and the prospect of a extra protectionist post-pandemic world ask extra questions of the nation’s future after Brexit, making the prospects of a sustained sterling turnaround this 12 months onerous to envisage. The Bank of England trade-weighted sterling index relapsed and hit file lows in March and regardless of a modest restoration since stays 12% weaker than it was earlier than the Brexit vote. Prime Minister Boris Johnson insists that, whatever the hunch, Britain is not going to lengthen a 12-month transition interval for leaving the EU even when no subsequent commerce deal is in place. However makes an attempt by his authorities to take out insurance coverage on a ‘no deal’ Brexit by accelerating bilateral commerce talks with america final month have additionally run into the sand. And this introduces the brand new twist to the pound’s many conundrums. Joe Biden’s early opinion ballot lead over Brexit-supporter Donald Trump makes U.S. commerce gambit extra unsure, given the Democrat challenger’s earlier scepticism about Brexit whereas vp underneath Barack Obama. The most recent betting and prediction markets give Biden a 17 level lead, the widest since he moved forward a month in the past. Trump has backed Brexit from the outset, holding out the prospect of dashing a bilateral commerce deal by way of, whereas Biden has mentioned little in relation to it over the previous 12 months, however has reiterated he “would have preferred a different outcome”. Market strategists say a Biden win may complicate the already irritating EU exit course of even additional and query assumptions that every one will work out in the long run. “There is a general perception the worst case outcome will be avoided,” Morgan Stanley’s cross-asset strategist Andrew Sheets mentioned, including: “But what happens in November could weigh on those calculations.” In a potential signal of issues to return, U.S. enterprise foyer The Chamber of Commerce final month urged Britain to reset relations with the EU earlier than pushing forward with bilateral offers. It pressured that U.S. corporations had invested greater than $750 billion in Britain, largely to safe entry to the EU single market earlier than Brexit. Whereas commerce minister Liz Truss mentioned on Wednesday that Britain had no deadline for a U.S. deal, she criticized Washington for speaking a very good recreation on free commerce whereas limiting import entry. Again in Brussels, EU negotiator Michel Barnier says he’s “disappointed” by Britain’s refusal to barter on overseas coverage and protection, though he may see some flexibility on conflicting positions on fisheries, transport and state assist. Talks are deliberate for each week till the top of July, however are then on account of break till mid-August. BRITISH BLUES British corporations, the financial system and the pound face a number of months in no-man’s land at a really delicate time. Whereas the world financial system was sunk by the coronavirus, Britain has suffered greater than most, partly on account of a heavy dependence on service sector corporations and a perceived delay within the authorities’s preliminary transfer to lock down the financial system. The Worldwide Financial Fund on Wednesday forecast the UK would contract greater than 10% this 12 months – an even bigger hit than superior economies general and a deeper hunch than Germany, Japan or america. What’s extra, the pound has additionally turn out to be much more fragile in recent times, analysis by Bank of America’s Kamal Sharma and Myria Kyriacou exhibits, with erratic buying and selling flows, poor liquidity and much greater implied volatility than main counterparts. And with the danger of Britain changing into untethered from main buying and selling blocs whereas saddled with enormous finances and commerce deficits, sterling is behaving extra like an rising market forex, they are saying. “The pound is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem similar to more liquid emerging market currencies,” the Bank of America group concluded. By Mike Dolan, Twitter: @reutersMikeD. Charts by Thyagu
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