Time is Running Out as EU Summit Looms

16 October, 2018

Matthew Boyle

The week so far has been a poor one for the Pound, particularly against the single currency and as the EU summit approaches in 48 hours on Thursday. Sunday’s media reports told of no agreement following a meeting between UKs Dominic Raab and EU negotiator Michel Barnier, and as such the start of this week has seen GBP>EUR rates drop back by around a cent and off the 3-month high seen at the end of last week. Yesterday we saw Theresa May address the commons suggesting that the UK and EU had reached some agreement, but only in so far that an Irish or UK backstop deal would be temporary in agreement.

Whilst this has in part stopped rates falling through the floor by suggesting that we are not necessarily at a no-deal situation yet, it does seem that this only really kicks the issue down the road. May confirmed that she is currently negotiating a backstop deal, but said that this backstop deal would be temporary and not permanent. So, whilst this perhaps buys some time and in the short-term might convince the DUP to continue to support her very fragile government, it offers no long-term solution other than continued hope that at some point a deal can or will be reached.

Whilst it seems there are increased hopes in recent days about a deal being reached which has helped prop Sterling rates up, it does perhaps seem that May is simply stalling the inevitable and perhaps unsolvable issue – The Irish Border. And so it seems the situation now is that in the short-term the only hope is a backstop deal, but as mentioned this cannot be permanent. Not only that but with May hanging on by a thread as Tory leader this type of short-term deal could trigger a leadership challenge and potential general election….. particularly if the DUP don’t follow support and she loses her majority.

Aside from all of this, can the Irish Border situation, in fact, be resolved, and who is it who can do this?

The clock is ticking, not only ahead of the EU summit but also with the article 50 deadline approaching in March 2019. So in the short-term, it does seem that Thursday at best will simply buy more time, and when March comes and article 50 is triggered (bar us changing our mind) we have then left the EU, and with whatever agreement, we have managed to reach that stage.

As such the Pound remains very shaky, with downside risk high – those readers with requirements may like to take advantage and catch the rate now before any further losses are seen.

Today we have UK unemployment data at 09.30, and whilst this may cause a small movement all eyes remain focused on Brexit and the Summit on Thursday. In what is a highly sentiment-driven market where media reports can shift rates quickly, people should be prepared for fast movements in the rate.

Speak to your currency Index broker today- we can offer some great ways to help protect your budget and help reduce the chance of your costs increasing should the rate continue to drop.