Brexit talks have become bitter after the Financial Times reported on Monday that the UK seeks to introduce a UK Internal Market bill that could override some of the agreements that were made last year in the withdrawal agreement.
Now into the eighth round of negotiations the pound fell lower again yesterday after the controversial bill was published. The FT reports the bill, which is designed for frictionless trade between all four corners of the United Kingdom, will “eliminate the legal force of parts of the withdrawal agreement.”
One section reads that any parts of the Brexit deal which contradict the bill "cease to be recognised and available in domestic law, or enforced, allowed and followed".
Highlighting how serious this new development is, the EU have called for emergency talks to discuss its implications. European Commission President Ursula von der Leyen said: "Very concerned about announcements from the British government on its intentions to breach the Withdrawal Agreement. This would break international law and undermines trust."
The bill could go to a first vote in the House of Commons as soon as next week so expect further volatility as developments unfold.
Talks between Michel Barnier and David frost are expected to conclude today and any statements released this afternoon or tomorrow could make for an interesting end to the week for the pound.
Brexit aside, UK Prime Minister Boris Johnson announced yesterday new lockdown measures to try and control a sharp spike in COVID-19 cases seen in recent days. From 14th September groups of more than 6 people will be banned from meeting. The uncertainty over COVID-19 still remains and crucially whether or not there is a second wave of the pandemic this Autumn at a time when the economy is trying to bounce back and the schools have reopened.
With no major economic data releases today, focus moves to UK Gross Domestic Product numbers tomorrow morning which will shed some light as to how the economy bounced back in July. The numbers are expected to show a strong monthly gain which could set the tone for the third quarter.
The European Central Bank meet today for the latest interest rate decision. Rates are expected to remain on hold at record lows, but any further guidance offered today could help direct the value of the euro. Inflation data has fallen to a record low and a run of other economic data suggests the economic recovery in Europe is now slowing. There is a suggestion that the European Central Bank (ECB) may tweak its guidance at today’s meeting and may signal a willingness to extend the €1.35 trillion Pandemic Emergency Purchase Program (PEPP). Brexit negotiations meanwhile will almost certainly have a big impact on GBPEUR.
The dollar looks set for volatility as tensions once again rise between the US and China after Trump has vowed to reduce economic ties. US Customs and Border officials have instructions to block imports of cotton and tomato products from China after allegations of forced labour.
USD has strengthened by 5 cents against GBP as investor sentiment has deteriorated and Brexit talks struggle to move forward. GBPUSD has now dropped to below 1.30 having broken over 1.35 just over one week ago.
The dollar continues to face uncertainty as the presidential election approaches. Some commentators have hinted that some key swing states could move from Democratic to Republican.
There is a view that Democratic states to include Minnesota and Wisconsin could see voters move towards Trump if law and order becomes a bigger priority following widespread protests. Omar Wasow, assistant Professor of politics at Princeton University told the New Yorker magazine that there are "white moderates who are part of the Democratic coalition as long as they perceive there to be order, but when they perceive there to be too much disorder they shift to the party that has owned the issue of order, which is the Republican Party."
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