This week Sterling has hit the news after reaching its highest levels against many major currencies in over 3 months, with some trading levels being the best in over 2 years such as GBPAUD and GBPNZD.
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The pound is gaining in value owing to hopes of a number of Brexit breakthroughs being announced shortly, with today potentially carrying the chances of further gains or falls depending on the EU’s Brexit offer. The markets have been waiting in anticipation for today, as the EU is expected to offer UK Prime Minister, Theresa May a free-trade deal with all the trimmings as mentioned by my colleague, James Lovick in yesterday’s report. This offer is not expected to include frictionless trade though, which is a major sticking point for many within the UK government at the moment.
After Theresa May’s snap election call last year resulted in her losing seats, her Conservative Government has been propped up by Northern Ireland’s Democratic Unionist Party (DUP). The head of the DUP, Arlene Foster is in Brussels this week as the EU’s chief negotiator, Michel Barnier is trying to convince her to accept EU’s customs controls, as he believes they are an essential ‘back stop’ to avoid a hard border with EU member Ireland once Britain leaves the EU. The DUP’s Foster has once again reiterated their stance and stated that they will never accept the regulations and customs controls, and that they won’t support any arrangements which include barriers within the UK's internal market. It’s looking unlikely that Northern Ireland will continue to be a member of the EU’s Customs Union, and those of our clients following the pound's value should follow this issue as it carries the weight to impact GBP exchange rates.
The DUP refusing to get on board with Theresa May’s ‘Half in, Half out’ Brexit plan isn’t her only issue, as Mrs May doesn't just need to agree on a deal with the EU, she must also convince her own Government that her plan is the best route for the UK to take. There is talk of the EU’s Brexit offering containing around 30-40% of May’s Brexit plan (also known as the Chequers Plan), and just yesterday morning Steve Baker, a senior lawmaker and Minister at the Department of Exiting the European Union, told Reuters that there at least 40 lawmakers are willing to vote down the Brexit plan from within May’s Conservative Party. This is an interesting time for Sterling as this topic is the main driver of its value. May needs the backing of about 320 lawmakers to get approval on her deal, and if 40 of her lawmakers vote against her then she will be relying on unlikely support from her political opponents in the Labour Party.
Rumours of another snap election to try and break the political deadlock still persist, and the UK-EU arrangement is expected to be in place by next month so it’s understandable that the markets are paying such close attention to UK politics at the moment. Next week’s EU Summit on Thursday and Friday could be key and those of a risk adverse nature may wish to consider the current levels in case of a change in the Pound's recent fortunes.
Aside from today’s key announcement from the EU, there will also be some economic updates covering the UK’s industrial and manufacturing sectors along with UK Gross Domestic Product figures. All will offer an insight into the health of the UK economy and all are released at 9.30am so feel free to get in touch if you wish to be updated if the markets spike.
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