GBP/USD: London is trying to play the hard Brexit card. Would Brussels believe it?

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The British currency entered free fall mode amid the fact that the new Prime Minister of the United Kingdom, Boris Johnson, made it very clear that the country would withdraw from the European Union at the end of October, even without a deal.

It should be noted that the passion around Brexit exciting the market is not the first time. Immediately after the referendum on Great Britain's membership in the EU back in 2016, the pound sterling collapsed by more than 10% against the US dollar, and the fall was repeated in the autumn of the same year when Theresa May (now the former prime minister) signaled that she does not intend to delay the process of the country's withdrawal from the bloc. Then, when investors believed that the government and the Parliament of the country were aiming for an orderly Brexit, the British currency rate stabilized. In April 2018, the pound even briefly touched a high of $1,434, - only 3.6% below the level marked before the referendum.

Apparently, investors are once again sounding the alarm.

"This time, the outcome of the British currency was at its highest since December 11 last year, when concerns about Brexit were at a peak without a deal," analysts at Royal Bank of Canada said.

"The ghost of Brexit is once again putting pressure on the pound. The market is becoming increasingly worried about B. Johnson's "hard" position regarding negotiations with Brussels, especially after the new prime minister's readiness to withdraw from the EU by the end of October with or without a deal, "said Antje Prake, currency strategist at Commerzbank.

"We still do not consider the UK withdrawal without a deal from the alliance as a baseline scenario, but the news background - political and economic - is likely to get worse, therefore the sterling still has room to fall," JPMorgan Asset Management believes.

UniCredit economists expect that B. Johnson may call early general elections in early September to get a mandate to secede Great Britain from the EU without an agreement.

Over the past month, the British currency has lost more than 4% in weight. The GBP/USD pair still risks moving down. According to analysts, the 1.2000 level is now psychologically important.

The situation is compounded by Boris Johnson's failure to hold contact with any leaders of the EU, while they will not resume talks with London on the terms of the divorce. The European side, in turn, insists that the only possible agreement is the one that was developed with the participation of former Prime Minister T. May.

On the eve of the publication The Sun, citing sources in the European Commission, reported that the EU considered the hard rhetoric of the new British Prime Minister Boris Johnson, as well as his assurances of readiness to make Brexit before October 31 at any cost, a bluff.

"It is difficult to estimate now how far the parties are ready to go in this confrontation, and while it lasts, the pound plays the role of an exhaust valve. However, it is obvious that the euro will also experience negative effects, and the EUR/USD pair may not hold the level of 1,1100. The matter has not yet reached the possible hard Brexit, and the German export machine is almost on its knees. The United Kingdom is almost equal to China in terms of importance for German exports, its share being approximately 7%. For the entire European Union, exports to the United Kingdom are an impressive £345 billion. Is the EU ready to cause a recession in itself, punishing one of its largest buyers?" said analysts at Saxo Bank.

"News of a concession of the position of any of the parties would be favorable for the pound. Since B. Johnson placed everything on the implementation of Brexit not by hook or by crook, rather, it will be a message that the European side agrees to the resumption of negotiations. Then a stabilization or even growth is possible for the pound in the near future," they added.

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