Pound Outperforms Euro, Dollar and Other Majors as Businesses Welcome Great Repeal Bill

Above: David Davis has announced the publication of the Government's Great Repeal Bill which enshrines EU law into UK lawbooks.

• Pound to Euro exchange rate (31-3-17): 1.1683, 24-hour best: 1.1704
• Pound to Dollar exchange rate: 1.2474, 24-hour best: 1.2509
• Pound to Australian Dollar exchange rate: 1.6314, 24-hour best: 1.6359

Ahead of the weekend Pound Sterling is seen as one of the best-performing currency in the G10 space.

In fact, over the course of the week that article 50 was triggered the currency has bettered the US Dollar, Euro, Yen and only the Canadian and Australian Dollars have managed to eke out a gain.

Full marks to those analysts who said Sterling would rise on the article 50 trigger.

Why is the Pound Doing Well?

The Pound's outperformance is more technical than anything.

The currency hit a one-month high against an under-pressure Euro with broad-based gains coming amidst a continued unwind of negative-GBP positioning on global foreign exchange markets. 

The markets continue to hold historically high bets against the Pound which offers the opportunity for the currency to recover whenever the market sheds some of these bets.

With little negative events emerging in the immediate wake of the trigger of Article 50 of the Lisbon Treaty  mid-week markets have found it increasingly difficult to push against the Pound’s March recovery.

Shaun Osborne at Scotiabank notes GBP’s greatest near-term risk is to the upside, “likely centred around positioning as we consider the sizeable CFTC short suggesting extensive bearish sentiment. Recently established shorts through March are vulnerable”.

“In the short-term, Sterling could be on the verge of a massive short covering rally,” says Fawad Razaqzada, a foreign exchange analyst with brokers Forex.com. “Consequently I am on the lookout for short-to-medium term bullish price patterns to form on the GBP/USD and other GBP pairs in the coming days”.

Others agree with the notion that there might be some more near-term upside to be had.

"We expect GBP to improve because the process to negotiate Brexit is a slow one and we don't expect any immediate reaction from the EU over the coming weeks. On the UK front, the GBP is correcting on risk aversion but given that the UK government has already published its positions in a whitepaper, we don't expect any real impact on GBP from UK side," says Steve Jarvis, Chief Technical Analyst, TraderMade Systems Ltd.

There is also the broad-based weakness in the Euro to note - the currency has slid over the past 24 hours on rumours that the ECB was unhappy with the pro-EUR response markets adopted following their March meeting.

There is the potential that they will strike a more negative tone in their upcoming meetings to try and ensure Eurozone bond yields and the Euro remain suppressed.

It is no wonder then that the Pound to Euro exchange rate is one of the day’s best performing currency pairs having advanced by over half a percent.

Great Repeal Bill Welcomed

The UK Government released the Great Repeal Bill on Thursday, March 30 which confirmed that the UK and EU will start Brexit negotiations at a point of equivalence.

The bill is expected to be subject to close scrutiny, with companies saying they cannot plan without knowing what comes after Brexit, forcing them to put investment programmes on hold and sometimes delaying major infrastructure projects.

Brexit Secretary David Davis said he believes it will smooth the path for upcoming talks:

“It also means the negotiation over our future economic partnership with the EU will be unlike any other in history, because we will start from a point of exact equivalence.”

Initial reactions to the bill’s release were positive.

“This gives small businesses stability and certainty that Brexit will not mean sudden big changes in regulation over the next two years. While transferring EU regulations into domestic UK law should eventually allow an overhaul of some of the more burdensome processes, which inhibit productivity, it is in no-one’s interest for there to be a cliff-edge moment,” says Mike Cherry, Chairman of the Federation of Small Businesses.

The one big negative that Brexit presents is a lack of clarity regarding the future trading environment for businesses.

Those who argue that Sterling will likely appreciate as more details concerning the outlook will point to the reaction to the Great Repeal Bill as an early example.

“We welcome the Government’s aim to give businesses certainty as the UK leaves the EU, as clarity and continuity on rules will be vital for business planning and investment. This is vital for companies to continue creating jobs and prosperity across all the UK regions and nations," says Josh Hardie, Deputy Director-General at the CBI.

“Transposing EU rules into UK law will be complex process, especially for heavily regulated sectors like financial services, automotive and pharmaceuticals. Businesses will also need to know that they won’t face a cliff-edge at the end of the two-year Article 50 process," says Hardie.

While the Great Repeal Bill is an important piece of the jigsaw, Hardie warns it must go hand-in-hand with securing some early wins in the Brexit negotiations to give businesses confidence that the UK and EU will achieve a successful outcome.

“We are calling on the business community to engage with the government on the Great Repeal Bill as it will affect almost every company across the UK," says Hardie.

Opposition to the Repeal Bill

While businesses like that the Government has offered further certainty, political opponents have focussed on the fact that some laws will be unilaterally altered in order to fit into the UK context.

It is a technical issue but has earned the grandiose title of the Henry VIII clause.

The “Henry VIII clauses” today give the Government powers to change old laws that have already been passed by Parliament.

They allow the Prime Minister to change existing laws without Parliament’s full approval.

Ministers insist they need these powers to “correct” European laws that refer to EU bodies soon to be defunct after Brexit.

But critics have accused the Government of avoiding scrutiny and - crucially - circumventing the Lords.

One such critic - and no surprises here - is Scottish First Minister Nicola Sturgeon who has signalled she will try and derail the Great Repeal Bill by withholding her government’s consent for its plans to give Scotland powers repatriated from Brussels.

The First Minister has claimed Westminster was planning a “power grab” by refusing to hand over all responsibilities currently exercised by the EU in devolved policy areas such as fisheries and agriculture.