Brexit hopes piping up, although mixed headlines leave markets none the wiser


There is some confusion over Brexit related headlines from the weekend that Theresa May has reportedly secured concessions from Brussels to keep the whole of the UK in a customs union in the wake of Britain’s withdrawal from the European Union. Such a deal would obviously prevent the need for Northern Ireland to be treated differently from the rest of the UK, which has been the main hurdle during Brexit negotiations. However, Downing Street has since poured cold water on the report, calling it speculation - So, sterling bulls might need to pull in the reigns at the start of the week as we wait for further news and clarity over such progress in negotiations.  

Prime Minister Theresa May's office said "negotiations are ongoing" and that a Sunday Times report claiming a proposed agreement had been reached on future customs arrangements at the Ireland-Northern Ireland border was "speculation."

PM May would still face a battle

Either way, PM May would still face a battle to get such a deal approved by her Cabinet because it is split between supporters of a clean break with the EU and those who want to keep close economic ties to the bloc. even then, she would then need o get it past an equally divided Parliament where the Brexiteers would worry that the U.K. will be bound to the EU forever under such a deal. We have already seen Boris Johnson and David Davis walk away over her Brexit blueprint and others could follow in a bid to make her change course. The other major risk to the pound would then be the possibility of her pro-Brexit Conservative lawmakers attempting to oust May with a no-confidence vote bringing back the risks of a party leadership contest.

However, the pound is likely to remain underpinned by such a notion 'speculated' in the Sunday Time's article while considering how close a deal seems to be. May's deputy, David Lidington, said Friday that negotiators were "very close" to an agreement and Irish Deputy Prime Minister Simon Coveney also spoke out saying, "I think it is possible to get a deal in November." 

The major cues for the pound will come from prospects of London and Brussels finally reaching an agreement on their divorce terms. In doing so, and providing that this would lead to a smooth transition into the new relationship, speculation that the BoE raise rates would be fuelled again, considering the MPC's belief that the UK's output gap has closed and that the economy will run hot at the end of 2019. Therefore, a rate hike to 1.00% could come as soon as in May. However,  Governor Carney stressed at the recent presser following the MPC's unanimous vote to leave rates on hold, that the Bank could respond to Brexit with either rates or cuts, depending on the impact of Brexit on demand, supply and the exchange rate – leaving us all none the wiser which means the pound can remain within familiar ranges.

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