Sterling has gained in value on the interbank market against many of its major counterparts this week, and hit multi-month highs versus the euro and US dollar yesterday shortly after the Brexit decision was announced.
In part, this is because the UK and European Union (EU) have at long last, after more than three-and-a-half years of, often strained negotiations, and three different British Prime Ministers (PM), finalised a Brexit deal.
In particular, UK PM Boris Johnson and European Commission President Jean-Claude Juncker announced the revised Withdrawal Agreement yesterday. Mr. Johnson tweeted that the deal means the UK “takes back control”, while Mr. Juncker stated that the deal “sought to identify a mutually satisfactory solution to address the specific circumstances on the island of Ireland."
This has strengthened sterling, partially because it seemingly removes the risk that there’ll be a ‘No Deal’ Brexit, in which the UK would have left Europe without any agreements or compensatory arrangements. Instead, the UK’s exit will be carefully managed, including a transition period through 2020.
However, it’s worth noting that, though the Brexit finishing line is in sight, we’re yet to cross it. One significant hurdle still to overcome is the fact that the Democratic Unionist Party (DUP) have announced that they won’t support the Brexit deal in its current form.
This is because Northern Ireland will effectively remain in the EU’s Customs Union to prevent a hard border on the island of Ireland. For the DUP, this would constitutionally separate Northern Ireland from the rest of the UK, so is unacceptable.
As a result, it’s unclear if Mr. Johnson will have the votes among MPs in the House of Commons to pass his deal, when he presents it at the extraordinary session this Saturday 19th. Meanwhile, the deal must also be ratified by the EU’s Parliament, although this looks likely.
Turning to the UK’s recent economic performance, it’s been a somewhat disappointing week. To begin with, we’ve learnt that UK unemployment unexpectedly rose by +0.1% in the three months to August, to 3.9%. The UK has begun shedding jobs, it’s thought in part because of the Brexit uncertainty.
Elsewhere, UK inflation held at 1.7% in September, according to the Office for National Statistics, which was below the forecast of 1.8%, while UK retail sales last month were flat at 0.0% month-on-month. This could slow the UK’s economic growth in the future.
You may wish to speak to your account manager here at FCD if you have an upcoming currency transfer as sterling is experiencing increased volatility ahead of Parliament's Brexit vote tomorrow.
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