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Brexit Briefing: Focus Turns From Brussels to Westminster

Brexit Briefing: Focus Turns From Brussels to Westminster

Martin Essex, MSTA,

Talking Points

- Perhaps surprisingly, the British Pound has held steady in recent days despite the quarreling in Brussels between the UK and EU Brexit negotiators.

- This Thursday the focus will turn to a debate in the UK Parliament on the Repeal Bill and chances are that the Pound will shrug that off too.

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In a sign that Brexit has ceased to have a major impact on the British Pound, the currency has held steady in recent days despite increasingly acrimonious arguments between the UK and EU negotiators last week at their talks in Brussels.

Those negotiations have now ended and members of the UK Parliament return from their summer recess this week to begin their first full debate on the Repeal Bill, which will replace EU legislation with domestic laws. That debate begins Thursday and could be just as confrontational as the talks between the UK and the EU yet chances are the British Pound will again pay little attention.

The problem for the UK Government is that it lost its Parliamentary majority in the June General Election that Prime Minister Theresa May called unnecessarily, which means the Bill could eventually face amendments not just from the main Opposition Labour Party but also from rebels in May’s own Conservative Party emboldened by her precarious Parliamentary position.

For the Pound, though, attention has switched back to where it so often is: on UK monetary policy and how it compares with policy elsewhere. There, as I wrote on Saturday, the outlook has improved for Sterling, with both the Federal Reserve and the European Central Bank now less likely than once seemed plausible to tighten monetary conditions short-term.

The ECB’s Governing Council meeting this Thursday will probably end with no guidance towards policy tightening, as will the meeting of the Bank of England’s monetary policy committee the following Thursday – the difference being that the MPC had never been thought likely to move.

This, rather than Brexit, explains the recent steadying of EUR/GBP and the consolidation of GBP/USD.

Chart: GBP/USD One-Hour Timeframe (August 23 – September 4, 2017)

Chart by IG

This firmer tone looks set to continue for a while yet, however bad tempered the Brexit debate proves to be in the Westminster Parliament, particularly as retail traders in GBP/USD remain modestly net short and at DailyFX we generally take a contrarian view of crowd sentiment.

Markets

Index / Exchange RateChange (Exchange Hours/GMT Session Rollover)Market Close/Last
FTSE 100-0.34%7,413
DAX-0.23%12,115
GBP/USD+0.05%1.2956
EUR/USD+0.35%1.1902
EUR/GBP+0.25%0.9188

Upcoming UK/EU Event Risk

EventsDate, Time (GMT)ForecastPrevious
UK New Car Registrations (YoY) (Aug)Sep 5, 0800-9.3%
UK Markit/CIPS Services PMI (Aug)Sep 5, 083053.553.8
UK Markit/CIPS Composite PMI (Aug)Sep 5, 083054.054.1
UK Official Reserves (Changes) (Aug)Sep 5, 0830$1273m
Euro-Zone Retail Sales (MoM) (Jul)Sep 5, 0900-0.3%0.5%
Euro-Zone Retail Sales (YoY) (Jul)Sep 5, 09002.5%3.1%

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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