GBP/EUR Inches Up as Bears Celebrate Christmas Day

GBP/EUR is advancing on Wednesday amid low volatility, as the UK and European markets are closed on Christmas Day. Currently, one British pound buys 1.1686 euro, up 0.11% as of 5:35 UTC.

The price increase might be only temporary, as the pair has been moving within a bearish channel since December 13. The quotation is testing a strong resistance line right now, and if it breaks it, we might see an attempt to reverse the downtrend.

The pound has been in free fall since the moment when UK Prime Minister Boris Johnson announced that he would make it illegal for the government to extend the Brexit transition period beyond December 2020. He passed the amended Withdrawal Agreement Bill (WAB) through the parliament last Friday. It suggests that the UK will have only 11 months after Brexit occurs by January 31, 2020, to reach consensus with European leaders for a trade deal.

Investors fear that this tight timeline may result in a no-deal Brexit, which is the worst-case scenario that could happen for the British economy. Accordingly, the GBP/EUR priced in these fears, but the pound might bounce back next year if the two sides show signs of agreement. So far, the EU is focused on letting the UK exit the bloc by the end of January.

When the UK Parliament voted the WAB on Friday, the European Commission took note and said it would take formal steps to adopt the deal on its side too. An EC spokesperson stated:

“We take note of the vote in the House of Commons. We will follow the ratification process in the UK closely. We are ready to take the formal steps to conclude the agreement on the EU side as well.”

However, when it comes to the transition period, European leaders are quite reserved. Many of them have warned that the timetable was challenging. EU Commission president Ursula von der Leyen stated that the deadline left “very little time” for the two sides to reach a trade agreement.

“In case we cannot conclude an agreement by the end of 2020, we will face again a cliff-edge situation, and this would clearly harm our interests,” she said.

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