Prospect of Brexit breakthrough sends Pound soaring

  • ‘May agrees revised Brexit deal with Juncker’. Concessions to stop the Irish border backstop from becoming permanent have been offered, with a mixed reception from MPs so far. The Attorney General’s assessment this morning is seen as the potential deal-winner. (Financial Times)
  • ‘Chinese Vice-Premier Liu He discusses trade deal text with US’ Robert Lighthizer and Steven Mnuchin’. After an absence of progress, talks between the US and China over trade are back in the public spotlight, although Donald Trump remains adamant that any deal must work for the US. (South China Morning Post)

Brexit

Theresa May returned to Strasbourg yesterday for last-minute talks with EU leaders. Three key legally-binding concessions over the Irish border backstop have been secured, along with a caution from the European Commission President that there will be no third chance if MPs reject the current deal. The Pound has soared on optimism that the UK could leave the EU in an orderly manner at the end of the month, but the critical point now appears to be whether the UK’s top lawyer, Attorney General Geoffrey Cox, agrees that the proposed amendments are legally watertight. The Democratic Unionist Party and European Research Group MPs have both given an initial cautious welcome to the developments, and this could be sufficient to see the government win the vote. However, Mr Cox’s observations, due ahead of the parliamentary vote later today, will likely deliver further volatility for Sterling.

Yesterday, the Pound recorded its biggest daily percentage gain over the Euro in more than two years, off the back of speculation that a deal could be passed today. If the vote, which should take place sometime after 7pm, goes in favour of the government, then look for further significant upside for Sterling as uncertainty is taken off the table. It is, however, likely to be a close-run contest. Conversely, defeat at this stage has the potential to result in heavy losses for the Pound, especially in the short-term.

US trade

US-China trade talks are back in the spotlight, after something of a hiatus. Without doubt, these are secondary to Brexit, but developments have the potential to generate some optimism over the outlook for global trade, which is likely to cause the US Dollar to depreciate from recent highs. Whether progress between Washington and Beijing would be sufficient to benefit other corners of the global trade market remains to be seen. Irrespective of US-China progress, US tariffs on EU car exports are certainly still weighing on Eurozone growth prospects and depressing the common currency.

GBP/USD

The Pound gained over three cents on the US Dollar at one point during yesterday’s session, making for its best one-day gain in percentage terms since the start of 2017. However, Brexit uncertainty continues to prevail and could serve up fresh bouts of volatility in the short-term.

EUR/USD

The Euro is trading largely sideways against the US Dollar, although hopes for improvements in global trade have the potential to deliver further gains as a result. An orderly Brexit should also be seen as a EUR-positive story.

GBP/EUR

Yesterday’s significant rally saw the Pound move back to 22-month highs against the Euro, but with tonight’s Brexit vote now likely to be a close call, defeat for the government could see Sterling scuttled.