Optimism but no deal leaves Sterling Lower
December 5th: Highlights
- Hard Brexit Fears diminish
- May risks Northern Irish support
- Fiscal reform still driving dollar
Brexit deal close but no agreement yet
There was no mention of the specifics of the discussion, but it seems the financial settlement has been more or less agreed and the disagreement centres around the Irish Border question.
Mrs May is risking the withdrawal of overall support for her minority Government from the Northern Irish Unionists in her rush to get start stage two of Brexit negotiations. It has been proposed that Northern Ireland should still be subject to EU regulation following Brexit which appears to be a halfway house that has more pitfalls than benefits.
The pound had a rollercoaster ride yesterday as rumour was replaced by hope and then dashed by May and Juncker’s announcement.
It reached 1.1420 versus the Euro before falling back to close at 1.1357 a small gain on the day. Against the dollar is fared little better as the greenback faced its own headwinds. It reached a high of 1.3540 before also retreating a little to close at 1.3464.
Ramifications of Agreement have unexpected consequences
With the Irish Republic saying it will veto any deal that involves a “hard border” with the North and Northern Ireland demanding that it receives the same treatment as the rest of the U.K. it is hard to see how a solution can be reached without a huge compromise.
The whole issue has much wider ramifications with Scotland sure to question any special treatment of Northern Ireland as it continues to harbour independence desires and the Mayor of London already saying that thee Capital also should be looked at as a special case.
Furthermore, the support of Democratic Unionist MP’s for Theresa May’s Government is in the balance and withdrawal of that support could lead to another General Election which would, at least give the people the right to a say on how Brexit has been handled.
Further volatility expected as talks continue
Until an agreement is in place and the ramifications are fully understood, this reaction is likely to continue with the hackneyed “no deal better than a bad deal” phrase still very much in evidence amongst Cabinet hardliners.
Supports are being seen at higher levels as a deal becomes more likely. Versus the single currency, 1.3400 looks fairly solid while there are sellers of the Euro at 1.1280 and just above.
Overall it is probable that once stage two of the talks begin Sterling will again come under pressure as the true cost in both financial and operational terms of leaving the EU becomes clearer. There is the added concern over Theresa May’s fairly precarious position but also with Irish MP’s becoming more disillusioned, a General Election cannot be ruled out.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”