Technically just Technicalities:
Deal or no Deal? Well, it’s quite a good question actually! The picture of Brexit remains remarkably opaque despite a flurry of reports suggesting that a deal is all but done on the Irish border backstop. This afternoon’s Sterling appreciation that peaked at as much as 0.8% versus market open was precipitated by a technical agreement on the Irish Border. Sterling’s upside was subsequently limited by the reminder that a technical agreement is far from an actual deal. The rhetoric over the past few weeks has highlighted the UK’s domestic political instability and the deadlock within May’s Cabinet, that at one point even resulted in the resignation of Junior Minister, Jo Johnson. Moreover, with the Democratic Unionist Party saying that it will categorically vote against any Brexit deal resembling May’s incumbent plan, a technical deal should give little tangible hope to Sterling traders. Today was the deadline for Italy to present a revised budget to the European Commission, having been given a period of three weeks within which to go back to the drawing board and develop a sustainable spending plan within its new coalition. The fiscally irresponsible Eurozone member is expected to refuse the Commission’s request to reform its budgetary outlook, with no deal having yet been presented to the European authority. Should the EU choose to, it is within its rights to incept an excessive deficit procedure and invoke a macroeconomic imbalance procedure to tangibly punish the defiant member. The price for doing so is hefty, with a fine of up to 0.5% of GDP the ultimate cost of profligacy. May’s cabinet will meet tomorrow morning to discuss today’s technical arrangement with the EU, so expect significant Sterling volatility with considerable, yet more limited, price action in the Euro too. Tomorrow has also been highlighted by EU Council President Donald Tusk and the deadline for May to request a summit of the European Council, the collection of European Union members’ heads of state, in order to secure the all-important and symbolic handshake before December. To add to the fun, salient data will be read for September and November for the United Kingdom and the Eurozone respectively. Brace for impact!
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – Opportunity for a weaker Dollar
Charles Porter
Thu 1 Jun 2023
Opportunity for a weaker Dollar The passing of month-end allows markets an opportunity to reassess currency valuations. Despite a cooling off within the Dollar as forecasted following the agreement between the White House and Kevin McCarthy, month end flows yesterday showed favourable conditions for a short-term Dollar resurgence. The beginning of June coincided with headlines […]
Morning Brief – Turkish Lira
Humphrey Percy
Wed 31 May 2023
Turkish Lira While President Erdogan removed the uncertainty overhanging the Turkish market by winning the election in the run off over the weekend, the news served to cement the certainty that nothing much was likely to change with respect to Turkish economic policy or indeed the subservient role of the Central Bank of Turkey to […]
Morning Brief – Did EURUSD miss the news?
Charles Porter
Tue 30 May 2023
Did EURUSD miss the news? Over the weekend, the President and the Speaker of the House of Representatives reached a much-awaited deal on the US debt ceiling. The impending constraint on debt could have forced the shutdown of government departments and precluded the US government from servicing costs and existing debts, triggering a default. The […]
