Hello, forex friends! Despite positive economic reports, the pound has been sliding across the board lately, thanks to renewed Brexit jitters. And if you somehow missed the recent major Brexit-related events, or maybe you just want a rundown, then today’s write-up is just what you need.
1. Sir Ivan Rogers Quits
Back on the 3rd of January, Sir Ivan Rogers, the U.K.’s ambassador to the E.U., announced his resignation. That’s obviously a disappointing event, but even more disappointing (and devastating to the pound) was Rogers’ leaked “I’m quitting” email to his staff, since it put Theresa May’s government in a bad light, especially with regard to Brexit.
To be more specific, Rogers told his staff at the U.K. Representation to the E.U. (UKRep) that:
“I hope you will continue to challenge ill-founded arguments and muddled thinking and that you will never be afraid to speak the truth to those in power.”
This was a subtle jab at Theresa May’s government. However, Rogers also took shots directly at Theresa May’s government, namely through the following statements:
“We do not yet know what the government will set as negotiating objectives for the UK’s relationship with the EU after exit.”
“The government will only achieve the best for the country if it harnesses the best experience we have – a large proportion of which is concentrated in UKRep – and negotiates resolutely.”
“The structure of the UK’s negotiating team and the allocation of roles and responsibilities to support that team, needs rapid resolution.”
In short, Rogers very heavily implied that Theresa May’s government is still unprepared for Brexit, despite plans to trigger Article 50 of the TEU by March, which is just a couple of months away.
2. Theresa May Implies “Hard” Brexit
In her first televised interview of the new year, British PM Theresa May was interviewed by Sky News on Sunday (January 8), and she took the opportunity to counter Rogers’ allegations. Namely, May said that the government’s thinking “is not muddled at all” and that her government already has clear objectives.
And according to the PM, the government’s plan is to pursue a “really good, ambitious trade deal.” Although she also said that the details will be released “in the coming weeks.” When asked if she plans to lead the U.K. completely out of the E.U., May responded by saying that she has no plans to “keep bits of membership.”
The interviewer also asked May on whether May prioritizes regaining control over immigration or access to the E.U. single market, and May replied as follows (emphasis mine):
“We are leaving, we are coming out, we are not going to be a member of the E.U. any longer. We will have control of our borders, control of our laws, but we still want the best possible deal for U.K. companies to trade with and operate within the European Union and also European companies to trade with and operate within the U.K.“
May was clear that she wants to follow the will of the British people by taking the U.K. out of the E.U., but she was also equally clear that she wants to do her best to get a good trade deal for both the U.K. and the E.U.
However, her statements were interpreted by market analysts (and the market as well apparently) as being a sign that the U.K. is headed for a so-called “hard” Brexit, which is a Brexit wherein the U.K. is shut out or only has limited access to the E.U. single market.
3. Theresa May Denies “Hard” Brexit
Theresa May had a speech mainly about social reforms and funding for people suffering from mental health issues on Monday (January 9). However, she ended up getting swamped with Brexit-related questions during the Q&A portion.
As for specifics, May was asked about her Sunday speech and the pound’s resulting slide due to “hard” Brexit fears. And the irritated PM blamed the media for that while denying that Brexit must have a “hard” and “soft” dichotomy.
“Well, I’m tempted to say the people who are getting it wrong are those who print things saying I’m talking about a ‘hard’ Brexit, [that] it’s absolutely inevitable it’s a ‘hard’ Brexit. I don’t accept the terms ‘hard’ or ‘soft’ Brexit.”
The PM then rephrased what she said on Sunday:
“What we are doing is going to get an ambitious, good, the best possible deal for the United Kingdom in terms of trading with and operating within the single European market. But it will be a new relationship because we won’t be members of the EU any longer. We will be outside the European Union, and therefore we will be negotiating a new relationship across not just trading but other areas with the European Union.”
4. Merkel Threatens the U.K. with “Hard” Brexit
A couple of hours after Theresa May’s Monday speech, German Chancellor Angela Merkel had a little speech of her own. And Merkel used the said speech to overtly threaten the U.K. by saying that there should be no “cherry picking” and that “access to the single market can only be possible on the condition of respecting the four basic freedoms. Otherwise one has to talk about limits.”
For the newbies out there, the “four basic freedoms” that Merkel mentioned, includes freedom of movement of people. This directly conflicts with the U.K.’s desire to regain control over its borders and will very likely be a major source of disagreement when negotiations for an actual Brexit finally do start.
5. Trump Effect to reach the U.K.(?)
On Tuesday (January 10), U.K. Foreign Secretary Boris Johnson gleefully announced that he and Trump’s team had a meeting of the minds. Or maybe they agreed because Johnson and Trump have similar hairstyles? I dunno. Anyhow, Johnson also announced that the U.K. will be “first in line to do a great free trade deal with the United States.”
This is in stark contrast to outgoing U.S. President Obama’s April threat that the U.K. would be at the “back of the queue” if the British people vote for a Brexit.
6. A New Challenger Appears
The U.K. Supreme Court is expected to rule on the government’s authority to trigger Article 50 of the TEU without the approval of Parliament some time next week. However, before Theresa May’s government can surmount this challenge, a new challenger has appeared, led by at least one of the same lawyers who mounted the first challenge.
This time, the legal challenge is that Article 50 of the TEU is required to leave the E.U. itself, but leaving the single market requires that Article 127 of the European Economic Area (EEA) must also be triggered separately. And triggering the said legislation requires the approval of Parliament, contrary to the government’s claims. Basically, the same as the first challenge, but applied to a different treaty. As such, the challengers are asking for a judicial review, and the court is expected to decide next Thursday (January 19).
The people who mounted the new challenge have also launched a new group called Single Market Justice and they are apparently settling in for a fight, since they’re asking for donations to fill up their war chest. There is therefore a good chance that Brexit negotiations may get delayed, and the pound tends to react positively to that. I guess we’ll see what happens next week.
So, given that Brexit fears are back in play, what’s your current trading bias on the pound? Are you still bearish? Or do you think the pound’s slide is done for the short-term and that it’s ready for a bounce? Or maybe you have a longer-term view? Share your thoughts by voting in the poll below!
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