Foreign Exchange Daily Market Update 15/10/18

Mon, October 15, 2018

Pound slips as Brexit negotiations hit Stumbling Blocks.

The pound weakened after a weekend of intense talks failed to produce a Brexit deal that some market participants thought could be announced this week.

Michel Barner the chief Brexit negotiator tweeted “Despite intense efforts, some key issues are still open,” including the backstop for Northern Ireland and the Republic of Ireland to avoid a hard border after a meeting with British counterpart Dominic Raab in Brussels yesterday.

Theresa May is set to meet EU counterparts on Wednesday. A meeting of EU governments scheduled for today had been cancelled, several diplomats said, and there will be no more negotiations before leaders meet on Wednesday. If the process were to fall apart, leaders have until a planned December gathering to decide what to do.

One of the PM’s headache is the need to limit the time Britain stays in the EU tariff regime, as pro-Brexit ministers are threatening to quit if she keeps the country locked in indefinitely. She also faces opposition to her plans from the Northern Irish party her government relies on for votes in Parliament. The party leaders have said they will not accept a border between Northern Ireland and the Republic of Ireland.

There is a risk to sterling if leaders cannot agree on the Brexit divorce terms this week, as well as U.K. lawmakers not endorsing such a settlement in Parliament later in the year. The Democratic Unionist Party in Northern Ireland has reportedly refused to back her fiscal plans if a solution to the Irish border puzzle isn’t found.

Both the U.K. and the EU have put in place a contingency plan in case negotiations fail. Philip Hammond said last week that he was readying the government’s reserves in case Brexit hits the economy and he needs to intervene

GBP fell 0.5% against the dollar to $1.3085, a one-week low. Sterling had risen as much as 5% from a low of 1.2662 reached last August, as hopes for a resolution to the Brexit deadlock grew. Sterling fell to €1.13 against the Euro after from €1.1443

Data to look out today.   

13:30 USD Retail sales.  

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