As we had suspected it might, the British Pound had a poor day on Monday falling against all the major currencies we track here.
Over the weekend, the Minister for Exiting the European Union, David Davis, had described the Irish border agreement as a “statement of intent” which was not legally enforceable, suggesting that the government could walk away from the deal. He also said that Britain would not pay a divorce bill without securing a trade deal with the EU in return; in contrast to the chancellor who said last week it was “inconceivable” that Britain would fail to honour its international obligations. Mr. Davis said of the bill, “It is conditional on getting an implementation period. Conditional on a trade outcome. No deal means that we won’t be paying the money.”
Investors are struggling to know what weight to ascribe to policy announcements which seem to be made up, announced, then quickly rescinded. Indeed, only yesterday morning, the Brexit Secretary was forced to issue ‘clarification’ of his comments; none of which left observers any wiser but reinforced the notion of a policy vacuum at the heart of Government.
As the week progresses, there’s a busier economic data calendar than we’ve seen recently. Average earnings and retail sales are all due before Thursday’s BoE MPC meeting whilst today brings the November CPI figures. If consensus expectations of an annual inflation rate of 3.0% prove correct, the Governor of the Bank of England will narrowly avoid having to write a letter of explanation to the Chancellor. If it is above 3% (and our own back of the envelope projections suggest higher petrol prices might outweigh Black Friday discounting) then the UK Press will also be full of stories about a worsening squeeze on real incomes.
After Monday’s slide, the GBP opens in Asia this morning at USD1.3345 with GBP/AUD at 1.7720.