The outlook for sterling remains uncertain in these final stages of the Brexit negotiations. Prime Minister Theresa May is in Northern Ireland again today to try and reassure politicians that she will find a way to break the deadlock and insist on her commitment to not having a hard border.
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Something we are going to hear more about in these coming days is the so called Malthouse Compromise, or Plan C. Following the Brady amendment which commanded a majority in the House of Commons last week, there is some momentum gathering for an alternative solution to the existing deal.
The proposal seeks to redraft the backstop and extend the transition period until 2021 which would incentivise all parties to reach a new future relationship.
What makes this proposal so striking is that is has support from both sides of the Brexit debate.
In essence it aims to remove the controversial backstop which is what the Brexiters are insisting upon and at the same time it provides safeguards if a deal cannot be reached, something the remain side of the argument are keen to have in place.
The newly formed Alternative Arrangements Working Group (AAWG) has been put together to discuss the feasibility of the Malthouse Compromise with a final meeting expected today. Any noises from either British or EU politicians could see considerable volatility for sterling exchange rates and a meeting tomorrow between Theresa May and European Commission President Jean Claude Juncker could also create movement.
The next important date is 14th February where MP’s will have the opportunity to vote on the Government's intentions, although rumours have been circulating that the date could be delayed.
Meanwhile no deal preparations are advancing and it has been reported the Queen will be evacuated from London if there are riots in the event of a no-deal Brexit. The Government contingency plans fall under codename ‘Operation Yellowhammer’ which relates to a no-deal Brexit and highlights the very real prospect of such an outcome which would be seen as negative for the pound. What is clear is that there is still some way to go in these fraught negotiations leaving a very uncertain few weeks ahead for the pound.
Sterling was dealt a blow yesterday after UK services data from the Purchasing Managers Index arrived weaker than expected. The numbers arrived at 50.1 in January down from 51.2 in December and represents the lowest reading for 2 ½ years. The January reading which is only just above 50 is important as anything below 50 indicates contraction in the sector. It would suggest that overall sentiment in the services sector has dropped as Brexit continues to impact on business decisions and future investment.
The Bank of England meet tomorrow; interest rates are likely to be held at the current level of 0.75% with the pending Brexit withdrawal fast approaching. To discuss your currency requirement and take the risk out of these markets then please contact the trading floor to discuss.
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