Negotiations between the UK and the European Union have kicked off. Already, Brexit Secretary David Davis back peddled on previous statements that trade discussions would run parallel to the divorce proceedings. Instead, trade will take a back seat until after the nature of the UK’s departure is confirmed.
The UK negotiation team took a blow once it became apparent that the government had lost its majority after Prime Minister Theresa May called a snap election.
The beginning of Brexit
The EU is flexing its muscle, as Michel Barnier, the EU’s chief negotiator, made clear when he said, “The UK has asked to leave the EU, not the other way around”, essentially stating the UK won’t be allowed to dictate the schedule of negotiations.
Brexit negotiations and the effect on the pound
Sterling has already weakened against both the euro and the US dollar. Our traders have been saying that the pound has been too volatile to trade on reliably, and this trend is likely to continue as the UK and EU sit at the table and try to come to terms.
BoE holds interest rates during negotiations
Bank of England Governor Mark Carney’s statement that the kind of impact Brexit will have on the economy remains unclear may have contributed to the pound’s fall. This comes on the back in a spike in inflation and a stagnation in wage growth, leaving British consumers worse off.
Carney used this uncertainty to reaffirm that now was not the time to increase the UK’s interest rates.
Calls for a smooth divorce
Chancellor Philip Hammond weighed into the mix as well, calling for a smooth Brexit so that businesses could avoid falling off a “cliff edge”. He suggested that sticking with customs union rules for a period after Brexit would help transition the UK while it was looking to negotiate new trade deals with the EU.
Simply put – Brexit means uncertainty
From all the news from this morning, it seems our traders are still on the money – Brexit means uncertainty, which means Sterling is volatile.
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