Brexit Briefing: Pound Slips as Picture Sums up UK’s Vulnerability
- The second round of the Brexit negotiations between the UK and the EU kicked off on Monday.
- But a picture of the UK team sitting without papers opposite an EU team with stacks of documents has led to more talk that the British are ill-prepared for the discussions.
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A photograph of the UK and EU negotiators sitting at a table at the start of the second round of Brexit talks has been circulating widely on social media. Each member of the EU team has a stack of papers in front of them; the British team has nothing but a notepad and pen. While unimportant in itself, the picture has been seen by some as a metaphor for how ill-prepared the British are for the discussions amid continuing political turmoil at home.
The British weekend newspapers were again full of comments by unnamed ministers who appeared to be bickering among themselves and briefing against Prime Minister Theresa May and her Chancellor Philip Hammond. A new leadership contest still appears to be on the cards, putting UK Brexit Secretary and lead negotiator David Davis in an unenviable position. By contrast, his EU opposite number, Michel Barnier, appears well-prepared and confident.
It would be a stretch to say that the British Pound’s weakness Monday was due to the picture. However, after GBPUSD hit the 1.31 mark early in the Asian day it slipped steadily lower in later Asian and European trading for no other obvious reason.
Chart: GBPUSD Five-Minute Timeframe (July 17, 2017)
As we have warned before, the currency will likely continue to be swayed in the months to come by news and leaks from the Brexit talks, even though the more important factor remains if and when UK interest rates will be increased.
On that front, tomorrow’s UK inflation data will be immensely important. As I wrote here, any further increase would strengthen the position of the hawks on the Bank of England’s monetary policy committee while signs that the growth in consumer prices is close to peaking would help the doves. That’s certainly the near-term focus for the Pound and other British assets but, as the picture showed, it’s not the only thing traders should keep an eye on.
|Index / Exchange Rate||Change (Exchange Hours/GMT Session Rollover)||Market Close/Last|
Upcoming UK/EU Event Risk
|Events||Date, Time (GMT)||Forecast||Previous|
|ECB Bank Lending Survey||July18, 0800|
|UK CPI (YoY) (June)||July 18, 0830||2.9%||2.9%|
|UK Core CPI (YoY) (June)||July 18, 0830||2.6%||2.6%|
|Euro-Zone ZEW Economic Sentiment (July)||July 18, 0900||37.7|
|German ZEW Economic Sentiment (July)||July 18, 0900||18.0||18.6|
--- Written by Martin Essex, Analyst and Editor
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