Brexit Update and Sterling: Negotiations and solution brainstorming continue at pace, and while lately causing some confusion, the overall position should become clearer as the year draws on. Both the EU and UK looking to have two fundamentals pillars agreed on by the EU Summit on October 18th-19th. One is the Withdrawal Agreement, which is the concerns the final divorce terms — citizens rights, final financial settlement, and the still unresolved solution to avoid a hard Irish border. The Irish border issue has proved to be a much greater political obstacle that anyone envisaged at the time of the referendum. The hope is that clever technology will eventually enable a hard border but with soft-border characteristics, though this could take years to achieve, and there is a need for a backstop solution (which by all accounts is taking up a large chunk of time in behind-the-scenes brain storming and negotiating). The other Brexit pillar is to lay out the “framework for the future relationship,” which will provision terms for a new trade agreement and for some other issues, such as security co-operation. Only when the EU is satisfied will it sign off on the agreed post-Brexit interim period, whereby the UK will remain in both the single market and customs union (but without member rights) from the legal Brexit day — 19th March 2019 — through to the end of 2020. The extra time will buy time for the EU and UK to iron out and ratify a new trade deal, and give Britain the opportunity for a “cliff edge” exit from the single market by allowing time to work on new trade deals outside of the EU.
The outcome of all the uncertainty remains; Sterling under pressure. This week its been more stories of Government splits and extensions of the transition deal beyond 2021, which were flatly denied by the Government but as with all things Brexit there is seldom smoke without fire. Cable has ebbed south of the 1.3500 level, remaining heavy after yesterday reversing out of a run higher above 1.3560 after the UK government dismissed that report that it was of a mind for Britain to remain in the EU customs union. Today’s low has breached yesterdays at 1.3471 following the 1.3500 break. The weeks low was posted on Tuesday at 1.3450 following Mondays high over 1.3600. The bias remains to the south as the Greenback rally moves into its sixth week.
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