With PM May on the way out and most likely Boris on the way in, a number of analysts have begun to forecast more pain for Sterling exchange rates. We'll know who the new PM will be by the end of July but speculation and comments from those lined up to replace May will be closely watched for signs that they'll push for a Hard or soft Brexit.
The GBP/EUR rate spiked higher towards €1.1750's late Friday on rumours an agreement could be reached between May & Corbyn but as with most rumours, unless they are substantiated then exchange rates tend to fall back which is what we've seen since Friday.
“Brexit Is Back, And It's Already Being Described as The Most Disappointing Season Yet” Talks between Labour and Conservative officials are set to resume today after members of Parliament return to London from their Easter break. If a deal can’t be sealed before European Parliament elections are due to be held May 23, the prime minister’s allies fear she will lose her chance and could be forced out, according to the people, who asked not to be named.
Yesterday’s press conference at the EU emergency summit brought a six-month extension to the UK’s exit date (to 31st Oct), with a review on progress in June. Commission President Junker played down the importance of this review, stating that it was “not another cliff edge”. Sterling’s reaction was muted as markets look for more substantial updates that progress is been made with Brexit.
Today’s EU calendar was again very light and none of the data releases seem had much impact on markets. In the US, the NFIB small business survey will be watched for signs that confidence continued to hold up at the back end of Q1.
With market sentiment for GBP/EUR rate so volatile at the moment typical trends we’re use to seeing are changing by the hour. Thanks to the news coming from ITV, Sterling exchange rates are holding on to most of its gains from last week. Current key trading level is now around the €1.1660’s. If we see the rate move LOWER than this level for a sustained amount of time, then the likelihood of the rate moving into the high €1.1630s will be high. As with such high volatile times the rate could easily move up HIGHER on the back of an unexpected Brexit updates and if we see the rate move above €1.17’s for a sustained amount of time then we could see it push towards the €1.1770’s. It should be noted that on two occasions now over 2 weeks ago the rate pushed towards the €1.18’s but failed to push higher. Anyone hoping to achieve €1.18+ will need to keep in mind that the best chance of seeing this happen will be PM May getting her deal through the House of commons. This is in my eyes is the best case scenario for Sterling exchange rates and anything else won’t have as positive affect.
The pound reversed losses after the EU-27 leaders came up with a plan B in case the EU Withdrawal Agreement is not passed by the House of Commons next week. GBPUSD fell to 1.30 yesterday, but has recovered to around 1.3150.
PM May is due to meet Donald Tusk around 13:30, rumors and announcements could be on the cards later this afternoon. Brexit updates have caused big movements recently and could easily do the same later this afternoon.
Last week the House of Commons rejected the EU Withdrawal Agreement for a second time, and voted to delay Brexit. Chancellor Hammond’s Spring Statement revised down borrowing projections, increasing headroom for potential giveaways later this year. Overall Sterling exchanges rates were all up much higher as markets attached a lower risk to a ‘no deal scenario. However since then sentiment has changed and yesterday afternoon reports suggested talks between the DUP and May have broken down also announced at pretty much the same time was the House of Commons speaker who has ruled against a 3rd meaningful vote until the deal is changed in some way. MP’s raised concerns that they would be voting again on the same deal without any changes to it which led to the Speaker making this announcement without notifying May beforehand. This has now made May’s situation even more difficult.
The pound was far less volatile during last night’s Brexit voting than Wednesday and may remain calm after the storm into the weekend. All of the proposed amendments were voted down and the government’s motion to delay Brexit passed with a majority of 210. As such, the Government, on the condition that the HoC approves PM May’s withdrawal deal before the EU Leader’s Summit next week, will seek to agree an extension to Article 50 to the end of June. However, if PM May fails to get backing for her deal, the Government will ask for a much longer extension to Article 50, likely requiring the UK to take part in European Parliament elections in late May.
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