Pound down as May’s Brexit deal faces stern criticism

Sterling has lost ground this morning as concerns increase that Theresa May’s Brexit deal will not get the votes needed to pass through UK Parliament.

EU leaders quickly approved the draft agreements on Sunday but criticism has been mounting over Theresa May’s deal from across the parties and even from those close within her own party. This morning a close ally of May, Sir Michael Fallon, said the deal is “doomed” and that it was the “worst of all worlds”. Overnight President Trump also snubbed the deal, stating that it “sounds like a great deal for the EU” and that the withdrawal agreement might mean the US can’t make a trade deal with the UK.

At this stage, it seems unlikely that Theresa May will get the votes needed to ratify this deal and ensure we move into the 2-year transition period after we leave in March. The vote is expected to be on 11th December so there isn’t much time for May to try and sell this deal to lawmakers. If the deal is initially rejected by Parliament she will get another chance but if it gets rejected a second time then we enter unchartered waters.

The following are different scenarios that might then play out:

  • A second referendum – vote to accept new deal, vote for new deal, vote no deal, or vote to cancel Brexit (remain).
  • A general election.
  • Renegotiate for a better deal with EU.
  • No deal.

It’s very likely, however, that for any of the first three scenarios to happen there would need to be an extension to Article 50 and this would require unanimous agreement from every EU leader. If May’s deal is voted down then we’d expect the Pound to weaken due to the uncertainty but some of this is already built into the rates. A lot can happen between now and the vote, however, and it’s likely to be a turbulent few weeks for Sterling.

As a result, the Pound has pushed back down towards the lower end of it’s ranges. The GBP/USD has lost a cent from yesterday and trades at a 10-day low and the GBP/EUR is down half a cent.

Pound pops off lows as details emerge over draft deal of future EU-UK ties

The Pound has just moved off it’s recent lows as further Brexit deal details emerge.

Bloomberg has just reported that the EU and UK negotiators have agreed on a draft text on future ties post-Brexit. Generally, this draft agreement points towards a softer Brexit, emphasising a close future trading relationship and commitment to deep customs cooperation which is seen as Pound positive. It also states their determination to replace the Irish border backstop arrangement in the future.

Most of this shouldn’t be much of a surprise, however, the commitment to a customs territory is unlikely to go down too well with the Eurosceptics. Theresa May has called the Cabinet together as this text is likely to ruffle a few feathers and won’t have satisfied many that were expecting further detail and a stronger UK position. After a string of resignations over the past couple of weeks, she will be hoping this doesn’t cause any further Cabinet members to lose patience with her deal.

The EU are expected to vote on the deal this Sunday and it’s expected to be approved by all 27-member states. Theresa May will then need to try and get the deal through UK parliament (voted expected around 10th Dec) which is likely to be a major challenge.

As a result, the Pound has pushed 1-cent higher against both the Euro and the USD and is trading at the best levels in a week.

Cabinet approve draft Brexit deal but Pound suffers losses on backlash and Raab resignation

We’ve had a very volatile overnight session in the FX markets with contrasting Brexit headlines.

After a marathon 5-hr meeting, Theresa May managed to get Cabinet approval for her draft European Brexit divorce bill. This initially led to a rally in the Pound. However, this was quickly met with backlash from Tory brexiteers, the DUP, and Labour MPs, which casts doubt the draft bill will get the votes needed to pass through Parliament.

Markets are increasingly concerned there will be a rebellion from hardliner brexiteers potentially calling for a vote of no-confidence in Theresa May, which is increasing political uncertainty.

The Pound was struggling for direction this morning until headlines soured with news that Brexit secretary, Dominic Raab, had resigned. He’s unhappy with the proposed Irish border backstop arrangement and felt he could no longer support the PM’s plan. This is a major blow to Theresa May as she tries to muster support for her Brexit deal.

As a result, the GBP/USD has swung well over 2-cents lower today from last night’s high. The GBP/EUR is down over 1% from last night’s high. Brexit will continue to dominate Pound movements and swing on breaking headlines. Theresa May will be keeping her fingers crossed that she doesn’t lose any further cabinet ministers.

The draft bill will now need to be approved by all the EU member states (vote expected 25th Nov) and will then be expected to be voted by the UK Parliament around the 10th December. The next few weeks are therefore going to be key for Brexit.

Dollar weakens as Democrats take the House from Trump

The USD has weakened today as US mid-term election results show that the Democrats will retake the House of Representatives from Trump’s Republican Party.

The Republicans have held the Senate but this split in Congress will limit Trump’s ability to push forward his domestic agenda  as many policies are unlikely to be approved by the Democratic House. This reduces the odds of any major boosts in fiscal policy and also increases political uncertainty.

Some market participants are concerned that these results will make Trump focus more heavily on his external policies, where he keeps control, which could lead to an escalation in US-China trade tensions.

In other news, the Pound is still benefiting from increased optimism over Brexit. Yesterday’s Brexit Cabinet meeting seemed to go better than many had expected and a thumbs up from Brexit Secretary Raab as he left the meeting led to a spike in the Pound.

There’s still a long way to go and some of the major issues are still unresolved. The Irish border continues to be the biggest hurdle. Yesterday, a senior member of the DUP said that it looked like Britain would leave without a deal because of this issue. That said, yesterday’s cabinet meeting appeared to show a bit more unity within the government and a determination to get a deal done.

As a result, the GBP/USD has moved 1% higher and trades at a 3-week high. The GBP/EUR remains buoyant and trading around 5-mth high.

Pound pushes higher as deal seems close on key UK financial services sector

The Pound has benefitted from further good news regarding Brexit negotiations today.

Yesterday afternoon’s sterling rally was short-lived, however, reports overnight pointed towards there being a potential deal agreed over the UK’s key financial services sector. This deal would allow UK-based financial services firms access to the UK markets. The full details are yet to be released but this has obviously been applauded by investors as it was a real concern for the post-Brexit economy.

In other news, the Bank of England have voted unanimously to keep interest rates on hold but they’ve implied that interest rates will rise slightly faster than current expectations should the UK avoid a hard Brexit. Their general tone was slightly more optimistic than expected which has further bolstered the appeal of the Pound today.

As a result, the GBP/USD has boosted around 2-cents from yesterday evening. The GBP/EUR is also now close to a 2-week high having risen over a cent from yesterday evening.

The last 24-hrs have been a clear demonstration of how volatile the Pound is and how its fate is resting on Brexit news. Traders have priced in a lot of the negativity over the past couple of weeks, so any good news is creating more exaggerated positive movements.