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#1 10-09-2020 13:17:18

johnedward
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From: Paris - France
Registered: 21-12-2009
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GBP/USD: pound heavily sold as UK violating international law

GBP/USD: British pound heavily sold as UK intentionally violating international law


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The British pound is racing towards the bottom. It has suffered the misfortunes of Brexit and collapsed at the news that the UK intends to violate international law on the Brexit Treaty.

This was an event that took the market by surprise. With the exception of the EUR/GBP, which rebounded from the lows reached a few days before the weekend, the pound has been falling since the beginning of the week. To get an idea of the impact, remember that just last week the GBP/USD reached as high at 1.349, and is now trading in the 1.29 zone. The same weakness appears in all GBP pairs, reflecting the reaction of the financial markets to one of the least British things in recent history.

What exactly happened and why is this a bad thing for the pound?

In the event of a (suddenly very likely) "no deal", the mutually agreed treaty, the "Northern Ireland Protocol", will be unilaterally denounced. This damages the credibility of the United Kingdom and puts the European Union in an awkward position to move forward.

It may very well be that this is only part of the negotiations to bring Brexit to a successful conclusion. But the way forward could jeopardise the nation's future. It is indeed unlikely that the European Union will walk away from the negotiating table. What is likely is that there is no longer trust between the two sides and that a precedent is in place.

As always, the financial markets are the first to react and look ahead behind recent developments. The problem is that the UK's decision violates international law - something you don't want to easily throw out the window unless there is a strong desire to isolate yourself from the world.

But so far, this year has been full of surprises. After Trump's election in the United States, America's protectionist policies have isolated him from the rest of the world. Then, the impact of the virus situation on globalisation pushed him in the same direction again. The United Kingdom faces a similar fate, but it is isolating itself from its largest trading partner - and neighbour.

Another problem is that the UK knows exactly what it is doing. Yes, no one in the UK denies the violation of international law. But if this is a way for a developed country to behave, we shouldn't be surprised that the pound sterling is collapsing, affecting the savings and investments of British households.

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