The pound has seen it’s impressive gains from the start of the month quickly evaporate this week, with PM May once again having to defend her position at the top and her government unsurprisingly stuck at loggerheads with Labour.
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Yesterday, May confirmed talks were on going with the Labour Party in a bid to come up with a compromise that will appease the majority of the House of Commons and break out of the current deadlock.
To say much of the pounds value moving forward hinges on these ongoing talks with Labour would be a drastic understatement and the reported stall in progress could arguably be seen in the pound’s return to April’s interbank range bound rates in the low 1.16s against the euro and 1.30s against the dollar in the early stages of this week.
Importantly, today Labour will be putting out it’s manifesto for the European elections at the end of the month. I suspect much of the deadlock during the cross-party talks this week stems from Corbyn not wanting to show all of his cards for today. Indeed, this represents an opportunity to detach his party from much of the public criticism both the Tories and Labour have received as a result of their inability to reach common ground, with both suffering from internal divisions.
It is worth noting however that the UK and Ireland both signed an agreement yesterday afternoon that protects the free movement of people between their borders. Thus, the mutual access to each other’s social rights (social security, health and education) will all be protected after Brexit.
This could well mark a turning point in the handling of the Irish border and potential branch out into the search for compromise with the rest of Europe. Something that could be greatly received by the markets and could potentially help prop up the pound’s value long term.
Aside from politics, tomorrow brings with it a raft of key economic data and could well prove to be decisive in the pound’s ability to keeping it’s head above the 1.16 interbank mark against the euro as the week comes to a close.
The Gross Domestic Product (GDP) release in particular will be under particular focus. It has been no secret that growth with in the UK economy has been slowing at an alarming rate as a result of all the Brexit uncertainty and so the disappointing 0.00% growth forecasted is likely to already be factored into the rate. Any deviation from this however could bring plenty of volatility to sterling exchange rates.
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