Sterling has started this morning on the back foot against the euro and USD following Theresa May’s meeting with EU Commission leader Jean Claude Junker last night. The plan was to have a deal in place for the UK’s political declaration on future EU-UK relations on issues such as free movement and trade, ready for the EU leader’s summit on Sunday, but an agreement is still yet to be made.
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Theresa May will have to travel back to Brussels on Saturday to thrash out the details on key topics such as fisheries, Gibraltar and the transitional deal after Brexit, before the EU can officially sign off on any deal. It now looks as though there will be a race against time for May to have a deal in time for Sunday’s EU summit, and the longer this takes the more Sterling is likely to suffer.
German Chancellor Angela Merkel has already made it clear that she won’t attend Sunday’s talks if there is no agreement in place by Friday, so there is a real chance that Sunday’s summit could be postponed until December and this could harm the pound further.
Unfortunately for anyone selling pounds to buy a foreign currency, the uncertainty doesn’t stop there. If a deal can be reached on Sunday, the withdrawal treaty - which has already been agreed in principle on the Irish border and the £39bn financial settlement - and declaration on future relations will then be put to the House of Commons so that they can have a meaningful vote on the deal.
This should happen next month and May is likely to face even bigger obstacles here than she has from the EU. If she cannot get the House of Commons to agree a deal then it looks as though the options are a no deal Brexit, or ‘no Brexit at all’ according to Mrs May yesterday when she clashed with Jeremey Corbyn before heading to Brussels.
If she gives away concessions to Europe on fishing territories and Gibraltar without clawing back any concessions on the much maligned back stop agreement, I believe she is likely to face a huge backlash when trying to get the deal through Commons. As such I expect major volatility for the pound and I would not be surprised to see the pound trading below 1.11 against the euro in the coming weeks.
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