Now that the UK budget is over, I expect the Brexit negotiations to heat up once more. Rumors floating around the market was that Theresa May wanted to get the budget out of the way before she potentially gives in further to more of the EU demands as she was fearful that the DUP would vote down the budget and force a snap election.
Over the last two and a half weeks GBPEUR exchange rates have declined by 2 1/2 cents as the likelihood of a no deal Brexit has increased. It appears that a ‘backstop within a backstop’ is the new hurdle that needs to be overcome. The EU want the UK to agree to Northern Ireland staying in their own backstop agreement, if the UK and EU haven’t agreed to a deal to keep the border open by the end of the transitional period and original backstop. This is all because the UK PM has said there has to be a time limit on the original backstop agreement which is the whole of the UK remaining part of the customs union for a period after Brexit.
This looks when of the toughest challenges that the Prime Minister has had to face and some of her own MPs have stated they have filed letters of no confidence due to the current proposal. It doesn’t look like this problem is going away for the next 4 weeks therefore I expect further losses for the pound.
In other news the key economic event for the remainder of the week is the Bank of England’s interest rate decision on Thursday. I strongly believe that all of the members of the Bank of England will vote to keep interest rates on hold and it will be the Governors speech shortly after that will impact exchange rates.
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