Sterling surrenders gains after Boris Johnson surrenders to the ‘Surrender Bill’
Sterling was heading for its first weekly gain since the middle of last month. Then it emerged that Prime Minister Boris Johnson, who dubbed the law that prevents a no-deal Brexit “the surrender bill”, had pledged to send a letter to the EU seeking a Brexit extension, if no agreement has been reached by 19th October. It’s superficially good news for a softer Brexit. But on the basis that a further delay also extends damaging economic uncertainty—it’s not the best news at all.
The news nixed chances the pound’s chances of a 0.4% rise against the dollar since Sunday night’s open. Now, GBP/USD heads for a flat week at best. Grounds for blaming the dollar are fairly moot after the mixed jobs report was a mild net positive for the greenback. As such, sterling weakness is a further sign that the advance that peaked at 12-week highs last month overplayed realistic prospects of a deal.
There were already signs of a cool market reception to Johnson’s swing to compromise this week, including reports that he could accept a ‘time-limited’ backstop. The yield on benchmark British government debt is set for a third straight weekly decline as the real money continues to shore up safety buffers. That’s not quite on message with Prime Minister Boris Johnson’s view that his latest formula has laid out a “landing zone” for deal. Its key points are below.
The major concession of a single-market for NI holds the main potential for a breakthrough. Acceptance of the need for an “all island regulatory zone” where physical goods can be checked, and a Border Inspection Post for agricultural, food and animal products, coheres with the EU’s demand for essential checks.
But if there were no ‘buts’, this wouldn’t be Brexit. Chiefly, the lack of a backstop opens the government to the accusation of breaking border commitments. An implied veto for Northern Ireland is also awkward for the EU. Little wonder that the European Parliament has telegraphed “grave concerns”. The European Council President Donald Tusk is “unconvinced”, whilst noting that the EU “remains open”. Ireland’s PM said on Friday that Johnson’s plan “isn’t supported by Northern Ireland”, though he was sure to add that a deal by mid-October is still possible. Chances of an extension have objectively increased.
The pound traded against the euro has been among the most ambiguous markets since Britain’s 2016 referendum, partly because of stuttering eurozone growth. Hence improving signs of a completed a weeks-long consolidation since topping at 93p in August underscore deflating sterling sentiment.
Original from: www.forex.com