GBP/USD Forecast: 3 reasons why the bittersweet EU Summit can push the Pound lower

The special summit of the European Union on Brexit ended with an approval of the deal that sets the path for the divorce between the UK and the EU. While the discussion among the 27 members reportedly took only 38 minutes and was priced in, there are three related developments that are of worry to UK PM Theresa May and the Pound.

1) DUP Threats

While the most thorny issue of the Brexit negotiations was settled, it does not satisfy everybody. The Irish border issue was resolved with the unpopular "backstop" which gives Northern Ireland a special status to the region, different from that of the rest of the UK. 

May's government depends on the Northern Irish DUP in Parliament, as it lacks a majority. The DUP is opposed to the backstop and already abstained on a few budget votes this week. But this is not the end of it.

Leader Arlene Foster gave an interview to Andrew Marr and hinted her 10-member strong party may go further than voting against the Brexit deal: they could break the supply and confidence accord and this risks toppling the government. A general election could lead to a Labour government which markets would not see favorably. 

2) Concession on Gibraltar

Contrary to the united front that the EU presented around Ireland, members were reportedly "impatient" with the demand of Spain to receive further assurances on Gibraltar. Nevertheless, the UK agreed to the requests made by Spanish PM Pedro Sánchez and a last-minute text providing guarantees was added.

The development was criticized by Brexiteers, lowering support in the public and in Parliament. The Spanish PM was gleeful in the EU Summit, not helping May's cause.

3) No generosity from the winners

The EU got its way in the Brexit negotiations, and not only on Gibraltar. The deal maintained the unity of the bloc and the UK was relegated to a rule-taker, at least in the transition period. German Chancellor Angela Merkel was moderate in her comments, saying it is a sad day but was pleased an agreement was reached.

However, European Commission President Jean-Claude Juncker, not a popular figure in Britain, emphasized that this deal is as good as it gets. Moreover, he advised British Members of Parliament to vote for the deal. 

Foreign intervention is frowned upon everywhere and will make Brexiteers and swing voters even angrier. Like with Gibraltar, it lowers the chances of passing the bill through the House of Commons. 

GBP/USD

An EU approval of the deal was expected ahead of the weekend and priced in. The other developments were not on the agenda. All in all, the bittersweet victory for May may turn into a pressure on the pound as markets reopen.