Sterling value continues to be dictated by the state of play in Brexit negotiations. We have seen significant gains for sterling this week against the majority of currencies following rumours that the UK financial services sector will have access to the customs union post-Brexit and that an Irish border deal is on the cards.
These are the two major points of contention, the UK Financial sector generates a huge amount of tax revenue and I think Brussels were very keen to get their hands on it. The Irish border deal that has been rumoured to be acceptable is very similar to Theresa May’s original offer whereby any tax owed is payed retrospectively.
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Although news in the press has been very positive I would be wary of thinking everything is going to be sewn up and sterling will continue its advances. If we look at GBP/EUR for example, 1.15 has been a key resistance point for over 18 months. We approached 1.15 in the last few weeks following news that an Irish border deal was to be accepted, only for Chief EU negotiator, Michel Barnier to rubbish claims. The GBP/EUR rate then dropped to the 1.11s. It is also important to remember that even if a deal is made it will still need to go through the House of Commons in January so gains may be limited until the deal becomes binding in January.
If a deal is forthcoming we could see an EU summit on 21st November, if this is announced expect sterling strength.
Tomorrow we will see the release of GDP data and this could have a bearing on sterling value. I am of the opinion it does not have its usual clout due to Brexit dominating the news and in turn influencing investor’s decisions. Quarter on Quarter there is expected to be an increase from 0.4% to 0.6% and Month on Month we are expected to see a rise from 0% to 0.1%.
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