28 Aug 2018: British Public’s attitude to Brexit Hardening

British Public’s attitude to Brexit Hardening

August 28th: Highlights

  • Brexit should mean Brexit
  • U.S agrees trade deal with Mexico, Canada under pressure
  • Rome pressuring Brussels over “flexibility”

Hard Brexit gaining popularity

There is growing evidence that the UK public is becoming more concerned over the performance of the Government in Brexit negotiations. The original battle cries of “Brexit means Brexit” and “no deal better than a bad deal” are being resurrected as concerns grow that to get a deal agreed it is the UK that is making most concessions.

The growing concern will come to a head when Brussels gives an official response to the Chequers Proposals (as amended by Parliament) which is likely to be negative.

The original reason for the Brexit Referendum, the issue of immigration, has been lost and swallowed up by the fact that a deeply divided Government is having to balance between Remain and Brexiteer wings with the consequence that it appears to now want a deal at any cost. If it looks like Prime Minister, Theresa May will agree to amend what were, supposedly, her final proposals, then she faces a very uncertain Autumn when Parliament reconvenes next week.

The pound has started to recover from the early summer fall based upon concerns over a no-deal Brexit, helped, in no small part, by a correction in the dollar. However, as infighting starts again, and no-deal becomes more likely the weakness is likely to return.

Yesterday, the pound’s rally, reaching 1.2902 was entirely driven by a fall in the dollar as its safe haven status diminished. There is strong resistance at 1.2940 which is unlikely to be broken without positivity over a Brexit deal.

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Trump gets his wish over NAFTA

President Trump has finally managed to get a tick in the win column over trade having managed to “beat Mexico into submission” in getting an amended version of the North American Trade Free Trade Agreement (NAFTA) signed.

This three-way agreement including Canada has been in place since 1994 and has been continually attacked by the President.
Trump, naturally, labelled the deal an “incredible agreement” which made dealings between the two countries “fair”. Attention now turns to Canada which has constantly refused to discuss changes. It remains to be seen what pressure will be put upon Canadian Prime Minister Justin Trudeau given the antipathy between Trump and Trudeau which was evident at the last G7 meeting, which Trudeau hosted.

Today’s release of U.S trade data for July will keep the U.S deficit in focus. Trade is starting to gain the markets attention as the NFP’s significance wanes given its entirely “concocted” nature which is subject to large revisions.

The deficit is likely to have fallen a little to below $69 billion although anything approaching $70 billion may attract the ire of, and more rhetoric from, the President.

The dollar index continued its recent correction yesterday reaching 94.77. It is now well below the pivotal support at 95.25 prompting many technical analysts to call the recent 96.99 high a medium-term top.

Politics continues to drive Eurozone

It should come as no surprise that the Eurozone is continually riven by political argument since its evolution to date and the plans for its future development often come as a surprise to its people and calls for any revision often fall on “stony ground”.

Italy is again calling for a change of regulation to enable it to loosen the shackles determined by its debt to GDP ratio which is currently well above 132%.

The Italian budget deficit is like a man who is constantly at the top of his credit card limit. Rather than reduce his spending he is constantly demanding the limit be raised. The dire threats emanating from Rome backed by those countries who suffer from similar profligacy concern the very future of the single currency. This is ironic since if the ECB raised debt ceilings, it would provide an even greater threat to the stability of the Eurozone and could even see the forced removal of a country as came close to happening with Greece.

Emmanuel Macron, the French President, who, mistakenly, believes he was voted into power on a platform of closer ties within the EU has seen his popularity fall in recent months as his centrist party appears to have “veered” to the right following the announcement of several policies seen to be favouring the wealthy and big business.

Meanwhile, the euro meanders along a well-trod path reacting to market conditions undeterred by anything other than ECB policy. Yesterday, it reached 1.1694 versus a weaker dollar but, like Sterling, it is unlikely to break 1.1740 without a major event in its favour.

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.”