FX.co ★ British pound suffers ordeal while UK and EU try to strike a deal

It’s blindingly obvious for those who closely watch the dynamics of the pound sterling that the success of the Brexit negotiations may be the main driver for strengthening of the British national currency next year.

Most experts agree that any developments in this crucial event – both positive and negative - have an immediate impact on the pound sterling. Any challenges to the UK’s exit from the European Union dent the pound’s rise. So far, there have been quite a lot of troubles. Prime Minister Theresa May ran into serious political opposition in the Parliament concerning demands from the EU. Nonetheless, the sides of these divorce proceedings want to reach an understanding in some key issues, for example, the amount of the money compensation. There are optimists who hope for the best. “Brexit has been the main bearish driver for sterling and we would expect a significant appreciation of the pound derived from a ‘soft Brexit’,” Roberto Cobo Garcia at BBVA said. However, there are also pessimists who fear the worst. Since June 2016 the British pound has lost almost 10 percent against the US dollar.

A hard Brexit, at which the UK fails to come to an agreement with the EU, would be the most damaging outcome for the economy and the national currency, according to the Reuters polls. Thus, traders have a very clear barometer at their disposal. While the Brexit talks proceed smoothly, the pound sterling rises, but if there are some problems, it falls.