America First, Brexit Second?

The election victory of Joe Biden and the very promising research result of a Covid-19 vaccine at Pfizer attracted all the attention in the financial markets in recent days. Meanwhile, the British pound is also rising in response to a possible Brexit deal.

The American people - after months of campaigning and days of voting - finally know where they stand. Biden will enter the White House on January 20 as the 46th president of the United States. In outline, his policy is already being drawn up. Biden will first give the economy a new boost to fuel the recovery after the Covid-19 pandemic. Thanks to the development of a promising vaccine, politicians, companies and financial markets can start planning for the longer term as of this week.

For Biden, improving health care and refurbishing neglected infrastructure are the major focal points of his policy for the next 4 years. We can only dream of such clarity about future plans here in Europe. We don't even know what the trade relationship with Great Britain will look like after December 31st. But that will change in the short term.

Cross the bill
There is very little time left to make proper agreements. Any agreement must also be laid down in regulations. Finally, official approval must also be obtained from the British Parliament and from all European heads of government. If there is no basic agreement before the EU summit on 19 November, we can brace ourselves for a no-deal Brexit.

For now, British Prime Minister Boris Johnson is still playing a big game. He will resubmit controversial domestic trade legislation to the House of Commons. Earlier this week, he suffered another painful defeat. The House of Lords voted down the law because it violates international law. The pound then bounced 1% as currency traders counted on Johnson to speed up the negotiations.

Biden win: the consequences for Brexit
In other respects, too, the pressure on Johnson is mounting rapidly. He has a lot to lose from Biden's election win. Incumbent President Donald Trump was eager to conclude a trade agreement with him as soon as the country left the EU without proper agreements. His successor is a lot less keen on that. Biden has been an outspoken opponent of Brexit on several occasions. There is a good chance that after taking office he will put more energy into strengthening ties with the European Union than in negotiations with Great Britain.

The British trade delegation does not seem completely immune to the mounting pressure. Several news sites reported on Wednesday that a provisional agreement may be reached by the middle of next week. The pound has already taken a small advance on this with a price increase of about 2% since the weekend. And let's just hope that both parties actually come to an agreement, so that after the boost from the American elections and the Covid-19 vaccine, a wave of Brexit optimism will soon wash over the currency world.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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