Update: Sterling begins Friday in the region of 1.3020 versus the US Dollar (GBP/USD) and 1.1382 against the Euro (GBP/EUR). Yesterday, Theresa May got through the Brexit summit, while downplaying the idea there could be an extended transition period. While no special summit in November has been called, May has been left in a tricky predicament to quickly concrete a deal before the January deadline. The Democratic Unionist Party which props up May’s Government commented on a transition extension, saying:
‘Such an extension would cost United Kingdom billions of pounds, yet our fundamental problem with the EU proposal remains.’
Additionally, UK Retail Sales contracted by -0.8% in September, a larger-than-forecast drop. The Office for National Statistics (ONS) said:
‘In September 2018, the quantity bought declined by 0.8% when compared with August 2018, due mainly to a large fall of 1.5% in food stores; the largest decline in food store sales since October 2015.’
The Pound exchange rate softened overnight against a basket of majors on Bank of England (BoE) comments and the disappointment that the much-anticipated November Brexit summit failed to come to fruition.
Pound Exchange Rate Falls Victim to Brexit Uncertainty
It was a disappointing night for Sterling. At last night’s EU summit, it was announced that leaders weren’t planning on holding a special summit in November as many had thought. Unless significant progress in the near-future is made, the UK and EU will have only the 13th and 14th December summit to finalise an agreement. This sits very close to the 21st January 2019 deadline in place, by which point the UK and EU Parliaments, and EU Council needs to have voted on the deal.
Global Reach Chief Economist Eimear Daly said:
‘The EU has a history of last-minute negotiations, so the lack of a November summit is not a significant risk to an orderly soft Brexit. However, the reaction of UK politicians to the idea of an extended transition deal is.’
UK Looks at Longer Transition Deal
An extended transition period has also been proposed, and there have been more calls for UK Prime Minister Theresa May to resign. An extension would see the UK pay into more EU budgets and allow free movement of citizens for the duration. Not only this, the UK would be limited in its ability to make deals with other nations.
‘Even if the new proposal wins favour with the Democratic Unionist Party, it would put the Withdrawal Bill’s parliamentary vote tally at 245 MPs for, and 405 against. Theresa May would need to rely on a substantial number of Labour MPs defecting and supporting the agreement.’
Meanwhile, Bank of England Deputy Governor Jon Cunliffe suggested the Pound exchange rate could experience a ‘big fall’ if the UK left the EU without a deal.
Cunliffe said: ‘At some point when the true Brexit is revealed and the path to it becomes clearer — it’s not a single event but it will happen quite clearly — then I’m pretty sure we’ll see the exchange rate move.’
It appears with the UK and EU at an impasse, Sterling could be very volatile in coming months.
With little UK data out in the rest of the week, Brexit is likely to remain in the spotlight, influencing the Pound’s movement. So far in today’s session, the Pound to US Dollar (GBP/USD) exchange rate has traded between highs of 1.3115 and lows of 1.3075, ebbing away from the 1.32 levels we’ve seen in recent days. Meanwhile, the Pound to Euro (GBP/EUR) exchange rate has been within the range of 1.1395 and 1.1380.