The pound hit multi-week highs versus the euro, US dollar and Canadian dollar on the interbank market this week. In part, this is because there’s been surprise progress in the UK’s and EU’s Brexit negotiations overnight, between UK Prime Minister (PM) Boris Johnson and Ireland’s Taoiseach (PM) Leo Varadkar. This follows a week in which it looked like talks might come to a halt.
Meanwhile, the UK’s economic performance was largely downbeat, with retail sales falling, according to the British Retail Consortium (BRC) and UK economic growth contracting by -0.1% in August.
Looking to next week, the EU’s important summit is next Thursday 17th. This is considered the last date for Mr. Johnson to reach a Brexit deal, or he may have to ask for another extension to Article 50. So we’ll see if he can seal a deal with the EU and pass it through Parliament before then.
The pound has strengthened on the interbank market this week, in part because UK PM Johnson met his Irish counterpart Mr. Varadkar in Wirral, Merseyside yesterday, to try and unblock the Brexit talks, following a week seemingly without progress. To the surprise of many global money managers, the two leaders said that they enjoyed a “detailed and constructive discussion.”
What’s more, Mr. Johnson and Mr. Varadkar added that "they agreed that they could see a pathway to a possible deal." As a result, a previously cancelled meeting between the UK’s Brexit Minister, Stephen Barclay, and the EU’s Chief Brexit Negotiator, Michel Barnier, will go ahead today.
This has raised hopes that the UK and EU could reach a Brexit deal before next Thursday 17th’s important EU summit.
Mr. Johnson’s and Mr. Varadkar’s progress yesterday follows a week in which the Brexit talks seemed to go backwards. For instance, on Tuesday, UK PM Johnson and German Chancellor Angela Merkel held a telephone call, in which according to a Downing Street source, Angela Merkel told Mr. Johnson that Northern Ireland would have to remain subject to the EU’s customs rules “forever”.
Brussels has neither confirmed nor denied Angela Merkel’s comments, but the No. 10 source described the telephone call as a “clarifying moment”. After all, no UK government could accept Northern Ireland staying “forever” in the EU’s Customs Union. This would constitutionally divide Belfast from the rest of the nation.
Turning to the UK economy, the performance this week was largely lacklustre. UK retail sales fell by -1.7% in September, year-on-year, said the BRC, while UK GDP (Gross Domestic Product) fell by -0.1% in August.
This follows July’s positive +0.4% growth. So we’ll see if the UK economy can accelerate looking ahead, to overcome the possibility of a technical recession, following the second quarter’s contraction, especially if there’s a Brexit deal in the foreseeable future. This may affect the value of sterling too. You may wish to be in contact with your account manager at FCD to discuss the latest currency market movements if you have an upcoming currency transfer.
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