Brexit talks start today

Today marks the start of official negotiations for the UK to leave the EU, as Brexit minister David Davis heads to Brussels to meet Michel Barnier to discuss the withdrawal terms of the UK’s exit. The Government’s preferred approach, which is to negotiate leaving at the same time as a new trade deal, appear to have been over-ruled and so we will only see issues such as citizens’ rights and a divorce bill being covered initially. The talks only last for one day and are followed by a similar meeting every month over the summer.

So while it will be a long time before any news emerges on the UK’s relationship with the EU post-Brexit, there could be some headlines about the final bill the UK is likely to receive, and some indication of how hard the negotiations are likely to be, all of which could weigh on the struggling Pound. Of course, with Theresa May’s position as Prime Minister looking precarious after the disastrous election own-goal, it would be very brave to assume that the talks won’t cause political unrest in the UK, with another General Election only a few disgruntled MPs away at any given moment. That would surely send the Pound lower, with no obvious alternative to the current minority government arrangement to reassure financial markets.

Meanwhile, five major UK business groups have written to the Business Secretary urging the Government to “put the economy first” in negotiations. With increasing pressure for a ‘soft Brexit’ and Theresa May’s weak position, the Government is left between a rock and a hard place, because a ‘soft Brexit’ would probably include freedom of movement of people, payments towards the EU Budget, and deferring to EU law – which would have Brexiteers up in arms again. The road ahead is completely unclear and if there’s one thing financial markets don’t like, it’s uncertainty – which we currently have in abundance.

Interest rate relief

There was, however, some relief for the Pound last week as the Bank of England’s Monetary Policy Committee unexpectedly voted 5-3 in favour of keeping interest rates on hold, compared to 7-1 in recent months. The possibility of an imminent interest rate rise to control inflation sent the Pound higher on Thursday, but the rally was short-lived as economic matters are overshadowed by political uncertainty at the moment. This week, there is no major UK data apart from public borrowing on Wednesday morning, but the other releases as below all have the potential to move exchange rates one way or the other.

Many of our clients are currently considering using a Forward Contract to guarantee their exchange rate in extremely uncertain and volatile times – if you would like to join them please give our friendly team a call to discuss all the available options for your forthcoming currency transfers.

This week’s economic data releases;

Monday
—— – Brexit negotiations
1000 – Eurozone construction output

Tuesday
0230 – Reserve Bank of Australia minutes
0700 – German producer inflation
0900 – Eurozone current account
1600 – Federal Reserve monetary report

Wednesday
0930 – UK public sector borrowing
1500 – US home sales
2200 – New Zealand interest rate decision

Thursday
0700 – Swiss trade balance
1330 – Canadian retail sales
1500 – Eurozone consumer confidence

Friday
0900 – Eurozone services & manufacturing growth
1330 – Canadian consumer inflation