Pound Will Probably have to Wait Until October For Breakthrough in Brexit Talks

- June European Council summit covering Brexit unlikely to be a success

- Sterling tipped to struggle until at least October

- Pound-to-Euro exchange rate @ 1.1390 today, Pound-to-Dollar @ 1.3320

© SlayStorm, Adobe Stock

Those looking for a stronger Pound may be disappointed this month and have to wait till the Autumn for further progress on Brexit negotiations say Blackrock, one of the world's largest asset management firms.  

June may see a bumpy ride for Brexit negotiations as opposite sides continue to stand off, and little real progress is expected to be made on key sticking points such as whether the UK will stay in the customs union or not and what form the Irish border will take, says Rupert Harrison, head of cross-asset strategy at Blackrock.

Harrison was at one time an advisor to former Chancellor of the Exchequer George Osborne.

The inference for Sterling of these views is that it will also be a rough few months and that the currency will remain pressured given the heavy, circa 15%, 'no-deal' risk premium weighing it down ever since the referendum.

Indeed, the comments from Blackrock come as we see Sterling underperform its competitors on fresh Brexit developments. We reported the currency came under pressure on news the government will look to force the EU Withdrawal Bill through the House of Commons in just one day on Tuesday, June 12. We believes this signals any prospect of watering down the type of Brexit that will be delivered is slim.

As things move closer to the Autumn deadline, however, Brexit risks will abate bit by bit and last-minute concessions will probably be made by both sides, before the make-or-break EU decision summit in October.

Harrison sees little chance of much progress being made towards by the June 28 EU summit as there will not be enough incentive for opposite poles to close the gap, as time goes by, however, the nearing exit day will sharpen minds.

Theresa May had promised a comprehensive white paper on the subject of Brexit before the June summit but indications are it will now be delivered after the summit.

Prime Minister Theresa May has decided to postpone the release of the government's white paper on the future relationship with the EU until after the EU summit on 28-29 June.

"I think that the fact that there is this October summit as sort of second chance means that neither side is willing to make the moves necessary to make this summit a success," says Harrison in relation to the June meeting and the white paper.

Brexit risks are likely to steadily ease as time goes by, adds the strategist, who sees a familiar pattern developing in which hard-Brexiteers within Theresa May's party are worn down at each turn. Their initial opposition to any kind of compromise on Brexit usually wanes in the face of "reality".  

"She has so far successfully pushed back the Brexiteers in her cabinet," says the Blackrock strategist, adding, "there is this repeated pattern of recognising reality. At each stage the pro-Brexit camp thinks it is better to keep the show on the road, keep Brexit alive and swallow a little bit of compromise to keep that show on the road," says Harrison in an interview with Bloomberg.  

More broadly, the chance of a hard-Brexit cliff edge is diminishing given the progression of the negotiations and the shifting terms of reference of the debate so far, which have steadily moved from the initial "Brexit is Brexit" pledge to the main opposition labour party seriously considering the possibility of keeping EEA membership.  

Although Harrison does not state it explicitly his analysis suggests a steady reduction in the political pressure on the Pound, which could see a recovery - particularly towards the end of the summer.

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