The Pound has turned full circle following the Trump election victory and has made substantial gains across all of the major currencies lifting sterling off those recent lows. The mood has turned positive for Britain not just on a trade deal basis with the US but because of Britain’s strong presence as a military power. Donald Trump is tipped to re-evaluate the North Atlantic Treaty Organisation (NATO) and there is a perception that the EU may wish to keep Britain on side especially when considering the more aggressive stance of late from Russia.
These political events so far have had a very positive impact for the Pound. The facts that Trump has commercial ties in Britain, was pro-Brexit and that his mother was Scottish makes for potentially very interesting times ahead.
However, a leaked memo surrounding Brexit which has hit the headlines this morning appears to be taking the recent shine off sterling. The report suggests an additional 30,000 civil servants may be needed and there could be possible delays of up to six months. Divisions in cabinet have also been cited.
The appeal by Theresa May to the Supreme Court in December which will rule on whether Parliament must be consulted before invoking Article 50 is essential for the future direction of the Pound. The decision from Scottish Nationalist Party Nicola Sturgeon to also intervene in this case shows how highly volatile the situation is politically for the British government. In the event that Theresa May loses the case there is a growing chance that we could be looking at a UK general election in the beginning of 2017. History tells us that British elections see high volatility for the Pound. Everything really does ride on this Supreme Court ruling as it effectively lays out the terms on how Britain withdraws from the European Union. The ultimate question that arises from all of this is whether or not Britain stays in the single market. Behind all the legal representations this single market issue is what this really is all about.
The case will be heard on the 5th December with four days allocated. However a verdict may not be established until January 2017 which could delay things further, prolonging the uncertainty. There is a chance that whichever party loses at the Supreme Court could lodge an appeal with the European Court of Justice in Luxembourg, the EU’s highest court. Whether either side would want to go down that route under these circumstances is another matter but the government is unlikely to do so. UK inflation numbers are released this morning and could create additional volatility.
Inflation is extremely topical right now with attempts by global brands to raise prices in Britain as a result of Brexit. The latest outcry has come from Toblerone which has reduced its chocolate content by having bigger gaps between the peaks. So, it’s interesting to read that the boss of the American company has personally been paid over £100 million over the last six years. Anyway, a high inflation number this morning could see the pound rally higher. Bank of England Governor Mark Carney will also be speaking to the Treasury Select committee to discuss the inflation report. It is his comments where any market volatility is likely to stem from.
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