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Major fluctuations: BofA analysts: British pound is behaving like an emerging currency | message


Brexit transition period expires at the end of the year
Leaving the EU could have a permanent impact on the British pound
BofA compares pound sterling to emerging market currencies


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At the end of January this year, the time had come: Great Britain left the EU. A kind of Brexit transition phase is still running until December 31, during which the country still belongs to the EU internal market and the customs union. Great Britain is currently in negotiations with the EU on how the relationship should subsequently be structured, but these have so far been unsuccessful. If the two parties are unable to reach an agreement by the deadline, a hard break with the EU threatens at the beginning of the new year, as British Prime Minister Boris Johnson refuses to extend the deadline.

Brexit could lead to permanent change

Bank of America analysts fear that Brexit could have a long-term negative impact on the British pound. Kamal Sharma and Myria Kyriacou compare the British pound to emerging market currencies due to liquidity conditions and Brexit. “Based solely on the sales statistics from the BIS Triennial Survey, one would conclude that the depth of the GBP market should have provided some coverage against volatile market movements,” CNBC said the BofA analysts. “This has not been the case, and we believe Brexit is likely to permanently change investors’ views of the pound.”

British pound is similar to emerging market currencies

Although the British pound is among the G10 currencies, a group of the world’s most widely used and traded currencies, BofA analysts believe that an investor analysis of the British pound cannot be performed using traditional G-10 currencies. The price movements of the pound, due to the liquidity conditions, instead approached those of currencies in the emerging markets. “A tailored view of the pound is needed and one that takes an EM-like view, especially as the UK’s internal and external debt dynamics are shifting towards some of the more developed EM countries,” CNBC analysts the Bank of America from their message again.

Liquidity risks remain high

Since the Brexit referendum in 2016, in which Great Britain voted to exit the EU, the position of the British pound has changed due to a collapse in the liquidity situation and, according to the experts, trading conditions are likely to deteriorate by the end of the year due to liquidity risks due to the nearer advancing end of the Brexit transition phase, deteriorate further.

Editorial office

Image sources: Valeri Potapova /, tezzstock /

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