Brexit Talks Bring Hope Not Certainty
June 20th: Highlights
- Davis and Barnier look for common ground
- U.K. “divorce bill” one of first items to be discussed
- Single Market vs. Free Movement trade off look likely
Pound little changed as negotiations begin
The full effect of what Brexit will mean will become clear over the next few months as the U.K. “bucks the trend” for greater global cooperation and “goes it alone”.
David Davis the Brexit Minister met his EU counterpart Michel Barnier and it was clear that the U.K’s belligerent posturing has been replaced by a more conciliatory attitude. Gone is the demand that a trade deal be one of the first items on the agenda, talks to agree the “exit bill” will instead be priority.
Michel Barnier commented “The United Kingdom has decided to leave the European Union, it is not the other way around. The consequences are substantial. I will work with, not against, the U.K. but will always have the interests of the twenty-seven as my basis for negotiation”.
he pound firmed a little against the Euro as talks began but overall traders preferred a wait and see attitude as there is sure to be disagreement and controversy to come. Sterling tested the 0.8750 resistance but remains within its recent 0.8750/0.8800 range.
FOMC members differ over further rate hikes
At the beginning of the year. Janet Yellen, the Fed Chair gave advance guidance that the tightening of monetary policy would lead to a “three hike strategy”. Not yet halfway through the year, the three hikes have taken place and the reasoning has become blurred.
New York Fed Chairman, Fred Dudley commented in a speech yesterday that a “tightening of the labour market would lead to higher inflation”. The Fed has “put the cart before the horse in hiking in a preemptive manner to an event which the data hasn’t borne out.
Advocating a more “wait and see” policy, Chicago Fed Chairman Charles Evans prefers to wait until the end of the year to decide whether the hikes that have already taken place have had the desired effect.
In 1996, then Fed Chair Alan Greenspan made his famous “irrational exuberance” speech regarding the dot com bubble. It is now a commonly held view that the hikes that have taken place were to calm the equity markets. It seems in 2017 actions don’t speak louder than words.
May to face hostile Parliament
Her performance under the severest of pressure will go a long way to determining whether she stays in her job. The vultures are beginning to circle a Prime Minister rapidly losing support.
From Hard Brexit and an election catastrophe to a seemingly cold and uncaring attitude to the Grenfell House disaster, Theresa May has had a tenure to forget. She is prepared to risk a peace in Ireland that was created from one of the most remarkable pieces of negotiation in history simply to cling on to power.
The economy has also turned against her as growth slows and inflation rises with little hope of a summer reprieve. There is little positive that can be said right now about the political and economic outlook for the U.K. This is in complete contrast to the other side of the English Channel where Emmanuel Macron’s Parliamentary majority put the seal on a remarkable six months of turnaround for the EU.
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.”