The Pound and Brexit negotiations picked up pace this week following further talks between Michel Barnier and Dominic Raab. The developments followed a six-hour bout of negotiations and were announced in the following press conference. It would appear that relations between Barnier and Davis which looked to be frayed have been improved by Raab, whilst we shouldn’t get ahead of ourselves deliberations and following press conference seemed more constructive and mutual respect more prominent. The talks were concluded by Michel Barnier claiming that the EU could indeed offer a partnership to the UK.
EU happy to offer an ‘unprecedented partnership’
Although far from a green light on a Brexit deal the comments indicate a willingness to deal with the UK. However, this is nothing new with a similar term used by the EU chief negotiator in Berlin. Therefore, it shouldn’t necessarily signal a willingness for the EU to accept Theresa May’s chequers white paper proposal.
It does, however, highlight that the EU wants its close ties with the UK to remain and could now be more open to placating some of the UK’s demands. As it looked like the UK would tumble out of Europe without a deal Barnier’s comments have provided hope. What this ‘unprecedented deal’ looks like with almost certainly depend on whether the UK and EU can work out a number of hurdles which as yet have seen little progress, notably the Northern Irish border.
Northern Ireland’s border
A sticking point between the EU, UK and Ireland has and remains the Irish border, an issue which is as yet without a tenable solution. This still remains the case and in order to avoid a hard border will require an innovate solution.
Dominic Raab remains more than aware of this and hinted that he could offer a role to the European Court of justice or a similar institution in order to resolve this issue. Whilst a backstop has been agreed with the EU the details as yet haven’t. The UK states that physical checks aren’t needed, however, the EU is insisting that the single market must be defended.
The EU ratification process in March
Dominic Raab will undoubtedly feel more confident about reaching an agreement if he can pacify their request for the Irish border to be managed correctly. It would appear that October’s deadline will be passed; however, the Brexit secretary believes that there is time for ratification if the deal is reached.
Raab stated that “I am stubbornly optimistic that a deal is within our reach.” Continuing Raab said “If you take account of the date chosen by the United Kingdom to leave, that’s 29 March which is in UK law, and you simply count backwards the time that you need for ratification, about three months here or there, then it takes you to November at the latest. It’s as simple as that.”
It would, therefore, appear if that the UK and EU overcome the remaining issues there would be still time to strike a deal. It would though remain unlikely that the deal would resemble the one outlined at Chequers.
May not willing to compromise
Despite the criticism, the Chequers white paper received it would appear that May is sticking with it, currently. Whether the rationale is to ensure the UK receives the best deal for its interest or to pacify Brexiteer Tory party members is open to debate. Regardless May would apparently be sticking to her guns and remains insistent on executing the Chequers deal.
In a recent article in the Sunday Telegraph the prime minister that she wouldn’t be pushed into comprises that wouldn’t benefit the UK. She also said the second referendum would be a ‘’gross betrayal of our democracy and trust’’ and said she wouldn’t give in to those calling for a second referendum.
This comment follows the Peoples Vote campaign which has attracted support from a number of MP’s who wish to have a final say on what the final Brexit deal will look like.
Pound gains strength
The admission from Michel Barnier and the more collaborative efforts from the Raab and Barnier lifted Sterling this week. The GBP/EUR opened trading on Monday at 1.1040 before touching close to year low, however, a role reversal was quickly seen following the more upbeat talks between the EU and UK allowing the GBP/EUR pair to 1.1181. Gains which sterling has been able to hold onto.
The sterling-dollar rates have also improved with sterling jumping from 1.2874 to 1.2993 following the latest Brexit developments, this was despite some very convincing prelim GDP figures from the US. The pair eventually closing Friday’s trading at 1.2958 falling away from the week high of 1.3035.
The pound gained the momentum it has this week demonstrates how much Brexit uncertainty weighs on Sterling, the smallest positive comments levitating the GBP. GBP/EUR is now heading towards 1.12 and did test the level following Barnier’s comments. If Brexit rhetoric continues to remain positive and a solution to the Irish border is found the currency pair has the possibility of breaking 1.13+ at interbank however the Brexit news would have to be groundbreaking.
In terms of economic data, the UK releases its latest Manufacturing, Services and construction PMI data this week. Although this will be noted further conversation about the latest UK and EU Brexit talks will be much more scrutinised.
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