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British Pound Rally Starts Next Leg on Signs of Softening Brexit Stance

British Pound Rally Starts Next Leg on Signs of Softening Brexit Stance

Nick Cawley, Senior Strategist

Talking Points

- Brexit minister Davis says UK may consider paying for EU market access

- Eurogroup chief Dijsselbloem says EU may find a way for UK to Access internal market

- Softening Brexit stance pushes British Pound higher

The first signs of a thaw in UK/EU Brexit negotiations appeared on Thursday when senior officials from both camps spoke of finding a way for the UK to retain access to the European Union single market. After months of frosty relations, the more conciliatory tone adopted by UK Brexit Secretary David Davis and Eurogroup President Jeroen Dijsselbloem points towards a ‘soft’ Brexit, rather than the more potentially Pound-negative ‘hard’ option, when the UK leaves the European Union.

The British Pound, and more latterly the Euro, have both been under pressure in recent months as the respective sides of the UK/EU divorce refused to give any ground on their break-up demands. The EU has been unified in insisting that no negotiations could take place until the UK triggered Article 50, while the UK has refused to be buckle to EU demands to speed up the divorce process. This status quo has weighed heavily on Sterling as businesses became increasingly concerned about the make-up of the post-Brexit landscape, while the Euro sagged on worries about the loss of business from one of the bloc’s largest trading partners.

UK Brexit Secretary Davis said that the country wants “pretty free” movement of high-skill labor and that the UK’s goal “may or may not include single-market memebership.”

Eurogroup chief Dijsselbloem in turn said that the EU may find a way for the UK to acces internal markets, although the Brexit outcome will be the UK outside of the EU. Other news sources said that the UK may consider making EU budget contributions if it meant “getting the best deal” for goods and services.

Chart 1: EUR/GBP 1-hour Chart (November 22 to December 01, 2016 Intraweek)

The British Pound pushed higher on the news, with EUR/GBP retracing back to levels last seen in early September. There may be a short-term opportunity forming in EUR/GBP, as Senior Currency Strategist Christopher Vecchio pointed out in the DailyFX Real Time News feed earlier today.

Ahead, the UK Parliament will reveal its decision on the legality of triggering Article 50 at a four day meeting starting on December 5. Judgment will be reserved at the conclusion of that hearing and follow at a later date, probably not for several weeks into January 2017.

Read more: British Pound Little Changed as UK Manufacturing Expansion Slows

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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