The British Pound first rallied hard then fell sharply on Friday in reaction the deal finally announced in Brussels between the UK and Irish governments which allowed the Brexit negotiations to move forward to ‘Phase Two’ at which trading arrangements between the UK and EU are supposed to be agreed. The GBP’s decline came as worries grew about whether the Government’s own MP’s would support the Irish border deal and whether in fact ‘regulatory alignment’ was just the same as staying in the EU but paying a big bill in order to do so!
Over the weekend, with the Foreign Secretary away for meetings in Iran, the Minister for Exiting the European Union, David Davies, described the 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are struggling to know what weight to ascribe to policy announcements which seem to be made up, announced, then quickly rescinded.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 this morning The Brexit Secretary was forced to issue ‘clarification’ of his comments; none of which left observers any wiser.
For the week ahead, there’s a busier economic calendar than we’ve seen recently. CPI, average earnings and retail sales are all due before Thursday’s BoE MPC meeting. So far in Asia and the European morning sessions, the GBP has already been up, sold off then reversed again without ever gaining much traction in either direction. It opens in North America this this morning at USD1.3370 with GBP/CAD at 1.7180.