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How Brexit drama keeps impacting the trade market

If there's one thing the financial markets dislike, it's uncertainty. We know that economic and political upheaval, natural disasters and conflicts can all affect currencies in the short-term, but uncertainty leaves a dark cloud hanging overhead. And when that uncertainty lasts for years, things can look very gloomy indeed.

Brexit, or the lack of it so far, has been sticking around like a bad smell since Brits voted to leave the EU back in June 2016. Then, when the departure date finally loomed large at the end of March, everything got put off yet again until the end of this October – with the potential for even further delays beyond that.

At least everyone's had two weeks of no further dramas because the UK Parliament has been in recess.

The reason the markets dislike Brexit so much is that they still have absolutely no idea what Britain's split from the EU will look like. Will it be a hard Brexit or a compromise split? Will there be a second referendum, and will that lead to no Brexit whatsoever?

All these options will have fundamental different economic impacts on Britain and member states of the EU, and that, in turn, will impact currency markets around the world. And so, while things have been inching along, currency traders have bought and sold on inklings and rumours that things are about to be resolved, only to find nothing is happening at all.

Here, we look at what the Forex markets make of the possible Brexit scenarios .

No deal Brexit

While many in the Conservative Party (and even some Labour supporters) want the UK to leave without any deal and revert to World Trade Organisation trading terms, most economists and traders view this as the worst-case scenario. Current uncertainty would extend beyond no deal, as the country attempts to stabilise its economy and trading status, and it's likely the pound would fall and then fluctuate wildly as everyone tried to get to grips with what happens next.

Issues with a no deal don't just end with the economic position – there's then the possibility of the Government collapsing, and a snap general election being called. And despite not wanting a no deal, most City people want a Labour Government even less. Currency prices are always influenced by big economic and political events like this, and the nature of Brexit just makes it worse.

While this would all impact on GBP, it will also affect the euro, which is already struggling and seeing economic hardship in Southern Europe, including Italy and Spain, while Germany is on the brink of slipping into recession and France is beset by civilian unrest.

Deal Brexit

If there is to be a deal between Britain and the EU, it's almost certainly not going to be the one that Prime Minister Theresa May wants. Cue more uncertainty. Expect, then, a watered-down version of Brexit, one that gets (finally) the approval of the House of Commons and still suits the interests of the EU. But it's likely this will not especially please the markets either. Uncertainty again, you see. But after an initial drop in the value of the pound, it's likely to rally because it's artificially low after the markets already factored in all of the things that could go wrong!

No Brexit at all

There is a large portion of the UK population who think Article 50 should be rescinded, a second referendum held and then Brexit scrapped if the public vetoed the previous decision. But while the markets might not be set against this, it would likely spark another period of uncertainty with Britain plunged into political turmoil that could affect incoming investment and ultimately put the economy – and pound – at risk.

It's clear then that none of the above is ideal for the Forex trading community. Safe havens might include trading in Japanese Yen or dumping Forex and buying into gold until everything calms down.

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