This week the UK Attorney General Geoffrey Cox has been in Brussels in a bid to achieve further concessions from the EU. To think that the Attorney General was going to return with a set timescale for the backstop was unrealistic, however to think he may have returned with confirmation that there will be an independent panel if the UK request to leave the EU whilst in the backstop I actually believe was a fair request.
This weekend the negotiations will continue, and Monday morning could be an extremely interesting trading period. Quite simply if you are happy with current exchange rates, buy upfront as the pound could strengthen or devalue significantly next week.
At present it appears Theresa May will lose the vote next week unless further concessions are made. If the EU were to give in to the UK’s demands of an independent panel instead of the European Court of Justice if the UK want to leave the backstop early, I believe this could sway MP’s to vote in favour of Theresa May’s deal and therefore sterling could increase in value.
However if the deal is not passed, Parliament will be consulted on 13th March and will decide whether the UK should crash out of the EU. If this was to materalise quite simply I expect the pound to crash. Furthermore, it’s likely that MPs wont support a crash out Brexit therefore a final vote will take place on the 14th, and MPs will vote to extend Article50 delaying the UK’s departure from the EU. The Government has stated that this would be a small extension likely until the end of June, however in my view this doesn’t achieve anything other than kicking the can down the road!
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Today the EU will release their latest interest rate decision and monetary policy statement. No changes are expected and as President Mario Draghi is set to depart his position at the end of the summer, many forecasters expect limited forward guidance and more of a wait and see approach. Markets don’t like uncertainty, therefore I expect the euro to lose ground against the dollar, and therefore the dollar to make ground against sterling.
Across the Atlantic, US economic data will be in the spotlight tomorrow, when the US release their latest non form payroll numbers, unemployment rate numbers and average earnings. Forecasts are suggesting that the unemployment rate and average earnings should impress and if the amount of jobs created is released at 180k, this should be a good day for the US dollar against sterling.
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