6 more months of Brexit

11 April, 2019

Rob Bastin

Yesterday’s trading was relatively muted as markets await the outcome of last night’s emergency EU summit, to see if the EU would approve a requested extension, and if so to what end and what timeframe. Financial market’s have become understandably nervous as this approval goes down to the wire with just 24hrs left before the UK would leave the EU in chaos without a deal. There was however one small positive note yesterday morning as Industrial and Manufacturing figures returned to a positive growth in February of 0.6% and 0.9% respectively. Crucially these figures were also reflected in the latest GDP figures which also showed a small growth in February of 0.2%, after zero growth in January. Sterling was subsequently able to recover around half a cent against the Euro and US Dollar after dropping for the last week.

The afternoon session also presented some up to date figures from across the pond ahead of the FOMC minutes last night. US inflation rose to 1.9% on the year from 1.8% last month, adding pressure for a rate hike sooner, particularly if inflation rises over 2% in the coming months. This data is one of a number of results being monitored by the federal reserve as they continue to assess the economic developments before implementing any further rate changes. Last night the FOMC minutes confirmed this stance with any future decision on policy to be based on key data such as growth, jobs and inflation with a continued dovish tone that saw the greenback weaken across the board post announcement.

Last night Theresa May met with EU leaders at an emergency summit and in the early hours it was announced that an agreement had been reached to extend the Brexit deadline to October 31st, giving the UK government another 6 months to conclude a Brexit solution. The immediate assurance from this is that both the UK and the EU seemingly have no appetite for a no deal Brexit. Part of this agreement will see the UK partake in European elections in May, otherwise we lave on June 1st without a deal. Currency markets are yet to react to this news with an extension already priced into the market, and what happens from here is still very much unanswered.

Parliament is still in deadlock, Theresa may still thinks that she can get her deal through parliament at a 4th time of asking, Labour and the DUP however are still opposed to backing it and the European Council re-iterated last night that there can be no re-opening of negotiations on this agreement. So where does Brexit go from here? If the current deal is dead in the water, then will we have a general election to start over? Could this lead to revoking article 50 and starting negotiations all over again? Will we have another referendum to solve the deadlock? under this government or a different one? Whilst any imminent treat of leaving without a deal has now passed, the uncertainty levels are as still high as ever with varying impacts on the currency markets depending on the solutions found by parliament.

The day ahead is absent of any key eco-stats, and as expected UK financial markets will be solely driven by today’s announcement, and any further developments that may come from this. Make sure you are in close contact with your currency consultant to keep the risk levels managed over these rocky months ahead.