The under-pressure Sterling and Euro recovered in today’s session, seemingly ignoring mixed macro data, while the Dollar was broadly unchanged in trade-weighted terms at a 22-month high thanks to emerging market currency weakness. Sterling continues to beat to the tune of Brexit, which seemingly changes beat every other day. The GBP/USD cross has rallied 1.4% in the past 24 hours to above 1.30, with the Sterling trade-weighted index up 1% to a one-month high.
Markets are seemingly reacting to (unconfirmed) reports that British and EU negotiators have ironed out the last stumbling blocks to the Withdrawal Agreement, including the Irish border issue, and that Prime Minister May will ask her cabinet to formally approve the Agreement at a meeting due to start tomorrow at 14.00 London time. The idea is that if an admittedly still divided cabinet can sign off on the Withdrawal Agreement in the next 24 hours, this would allow the European Commission and the 27 other EU member states enough time to have a final review of an agreement which would be rubber stamped at a special EU Summit later in November. This would then give the British and European parliaments sufficient time to vote, potentially before end-year, and any legislation to come into effect before the UK formally leaves the EU on 29 March 2019.
That is the timeline which both sides have set themselves but there is still doubt as to whether Prime Minister May and the European Commission have found a solution to the Irish border issue which is acceptable to her own cabinet, the ruling Conservative Party’s partner (the DUP) and ultimately the British Parliament. Moreover, there is the no small matter of the terms and conditions of a new post-Brexit deal, which are still subject to intense negotiations. The next few weeks remain critical for Sterling’s path and the only certainty at this stage is that there is still a great deal of uncertainty.
