Early this morning Jean-Claude Juncker announced that he believes sufficient progress has been made on the issues holding up Brexit talks. The financial settlement for the UK/EU divorce has been agreed, the issue of the border between Northern Ireland and the Republic of Ireland has been resolved, and rights for EU citizens in the UK and UK citizens in the EU and the role of the European Court of justice following Brexit has been settled.
With the final hurdles that were holding up the first phase of Brexit negotiations now settled it is expected that phase 2, which should include the all-important trade talks, will start in the New Year.
The EU hasn’t actually asked for a particular sum of money for the UK to leave the European Union. What it has stated is, “the United Kingdom must honour its share of the financing of all the obligations undertaken while it was a member”.
The UK has committed to continue to pay into the EU budget until 2020. This figure is believed the UK will pay something in the region of €40bn to €60bn. The agreement also includes the return (in annual instalments) of the capital the UK has at the European Investment Bank.
The rights that will be enshrined into UK law include the ability for EU citizens living in the UK to gain permanent residency through a simple, streamlined process, with their rights remaining relatively unchanged. Although there will be tighter restrictions on their ability to bring family members to live in the UK.
According to the UK ambassador to France, who was speaking in Paris yesterday, EU citizens who have lived in the UK for five or more years will have a ‘settled status’ and will receive the same rights as British citizens. Those who have been in the UK for less than five years will be able to stay and will have ‘settled status’ once their five years of residency has passed. It has been reported that the EU has agreed in principle to grant reciprocal rights for Brits living in the EU.
The agreement on the Irish border is based much around the prevention of a hard border between the north and south. It currently believed that there will be no hard border following Brexit and that the agreement will preserve the Common Travel Area and will protect all the relationships agreed in the Good Friday Agreement.
The EU have been keen to ensure that the deal is right for Ireland, stating that unless Ireland was happy the EU would not progress to phase 2 of Brexit negotiations.
The EU have agreed to loosen the original demands that the European Court of Justice would hold judicial oversight over whether the divorce deal is being upheld by the EU and the UK. It has now been agreed that its case law will be used to interpret the deal on citizens’ rights.
The Pound has hit a 6-month high against the Euro on the news of the agreement. Against the Australian Dollar and New Zealand Dollar the Pound is now at levels not seen since before the EU Referendum (over 18 month highs). GBP/USD exchange rates are also close to post EU Referendum highs.
The table below shows the movement for a number of GBP currency pairs over the last 30 days and the difference in value between the high and the low when transferring £200,000:
|Currency Pair||% Change||Difference on £200,000|
Despite the spike in Sterling's value seen so far today, the Pound could easily slip back then quickly rise, we could have a very volatile period ahead as the market tries to assess this situation. Whilst the agreement is great news there is still a very long road to go on Brexit as we move to ‘Phase 2’ of talks in the New Year.
Shortly we will have to go through a familiar process of uncertainty and concern over just what kind of trade relationship the UK and EU will have. Nevertheless, today is a very good day for the Pound and with plenty of volatility expected, any clients looking to buy or sell foreign currency should be sure to contact us to discuss this situation and how it might affect their plans.
If you would like to learn more about anything you have read in this report, or have a currency transfer to complete and wish to speak to an expert, please give our team of currency brokers a call on 01494 725 353.
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