Prospect of further Brexit delay buoys Pound

​​​​​​Today's news headlines:

  • 'Pound erases earlier declines as Theresa May seeks another Brexit delay’. Sterling jumped in the wake of last night’s statement by Theresa May, although EU leaders still need to accept any request to extend Article 50 and a soft Brexit compromise risks dividing the Conservative Party. (Daily Telegraph)
  • 'US and China draw closer to final trade agreement’. Senior trade negotiators have resolved most of the differences which have been preventing a deal, but implementation and enforcement of any new regulations remain up for debate. Both sides will need to make further concessions to get this deal over the line. (Financial Times)

Brexit

Last night, Theresa May made a statement saying that the UK would seek a further extension to Article 50 to engage in cross-party talks with Labour. This comes as politicians attempted and failed to find a compromise over Brexit after seven hours of cabinet meetings. EU leaders will need to agree to the extension, with the expectation that any delay on offer could be lengthy. A softer version of the deal including a customs union now appears increasingly likely, which is seen as good news for the Pound in the short-term. This would, however, have the potential to leave the Conservative party deeply divided, risking a win for Labour at the next general election.

US trade deal

Trade talks between China and the US resume in Washington today, with suggestions circulating that the deal is now 90% done. This has been sufficient to fuel risk appetite and leave the US Dollar to retreat a little from recent highs, but the last 10% of negotiations remain contentious. China wants to see tariffs removed immediately, while the US wants to maintain them to ensure compliance with the new rules. Both sides will need to give ground, but failure to move quickly could see the talks dragged out until the next G20 meeting at the end of June. An amicable resolution could continue to be USD negative.

GBP/USD

The Pound jumped against the US Dollar in the wake of Theresa May’s statement last night, with the prospect of a further delay to Brexit bolstering confidence in Sterling. However, gains are vulnerable to comments from the EU regarding the terms they may seek to any extension of Article 50.

EUR/USD

Having traded close to one-month lows yesterday, the Euro found support against the US Dollar following Theresa May’s speech, underlining the risk faced to the Eurozone from a no-deal Brexit, too. Gains were further extended by the risk-on move overnight, although the pair continues to trade at the lower end of its recent range.

GBP/EUR

The Pound has now gained over a cent since Theresa May made her statement last night. Again, this illustrates the market’s opinion on delaying Brexit and the potential for a far softer version of the original plan being delivered, although an increase in political risk could see these gains reversed.