British Pound Charges Higher on Barnier's Irish Backstop Comments
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- Barnier open to working on alternative solutions to Irish border question
- Says negotiations 90% done
- Pound rallies to three-week high vs. Euro, above 1.30 vs. Dollar
- And, Boris Johnson's marital problems might also be constructive for Sterling we are told
The British Pound recorded a rare weekly advance on the Euro and other major currencies in the wake of comments pertaining to the Irish border question from the EU's chief Brexit negotiator Michel Barnier.
Barnier has said he is open to "other backstops" for the Irish border question, while newswires report he now believes negotiations are 90% complete.
A transcript covering Barnier's comments to the UK's Exiting the EU Committee earlier this week in Brussels was released this morning, it was here that the comments concerning the Irish border were found.
Barnier said:
"The Withdrawal Agreement has to have an operational backstop in it, which holds water legally. Ladies and gentlemen, it is not necessarily our backstop, as covered in this document. We are open to discussing other backstops, so we can discuss this text, we can make changes to it. We are open, but whatever happens, there has to be a backstop. We need that. It has to be an operational backstop in legal terms. Brexit without a backstop would create a problem for Northern Ireland, and the inhabitants of the island of Ireland we think are entitled to some certainty regarding the conditions for future co-operation between the two countries."
The impact on the Pound is notable with the Brexit-sensitive Pound-to-Euro exchange rate leaping over 0.65% higher in a matter of minutes:
This is "a headline that GBP markets probably wanted. Michel Barnier suggesting that an Irish border backstop solution within reach. A concrete solution basically takes no-deal off the table. Positive re-pricing of GBP risks in motion," says Viraj Patel, a foreign exchange strategist with ING Bank N.V. in London.
The Irish border question is without doubt the single toughest issue for negotiators to navigate at present and as we noted earlier, negotiators are so bogged down in this contradictory puzzle that they might 'fudge' the Withdrawal Agreement' and kick the issue into 2019.
We saw this as one potential issue that could hold back a rally in the Pound.
The EU ultimately wants Northern Ireland to remain in the EU customs union if the rest of the UK diverges and adopts independent customs policies; the UK will however not contemplate a border between Northern Ireland and Great Britain.
"While a trade deal would be good news for the Pound, upside potential could be limited if another fudge is announced and a true solution for Northern Ireland remains elusive," says Jane Foley, a strategist with Rabobank.
However, it appears that the EU are willing to move on the issue. This tells markets real progress is possible.
"I also think that this will require an effort on both sides, that we should be able to de-dramatise this backstop by describing what it will mean on the ground, having a kind of set of checks that are technical and operational and that would be applied unless and until there is an agreement on the future relationship that would finally settle all these issues, at least partially. So we are open to that prospect," says Barnier.
The negotiator adds:
"We are ready to simplify these checks, to have them carried out at a number of different places and have checks, thanks to technical means, which could take different forms. But that effort to de-dramatise the situation should be made by both sides, which is why I say Ireland remains the crucial issue if we are to get an agreement, but if there is no operational backstop on Ireland, there will not be an agreement."
Following the announcement the Pound-to-Euro exchange rate is trading at 1.1194, its highest level since mid-August.
The Pound-to-Dollar exchange rate is trading at 1.3005.
Gains were cemented ahead of the weekend on a newswire report that Barnier told Austrian Chancellor Sebastian Kurz that negotiations are 90% complete.
"Last week it was 80%. Liddington said 85% a few days ago. And one #Brexit meeting later it’s 90%. At this rate we’ll probably have a whole new trade deal wrapped up by Xmas! P.S. It’s easy to strike a deal when your just copying & pasting something that already exists," says analyst Viraj Patel with ING Bank N.V.
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And, Boris Johnson's Marital Woes Boot Might Just Have Helped Sterling too
Image © Andrew Parsons/ i-Images, Flickr, Reproduced under CC licensing
Conservative party bigwig Boris Johnson finds himself in marital woes at the moment with a news story breaking today saying he is to be divorced over extramarital misdemeanours.
Does this matter for the Pound?
Yes says Robert Howard, an analyst who sits on the currencies desk at Thomson Reuters.
"Sterling could gain if Boris Johnson's chances of succeeding Theresa May as Britain's prime minister decline – which looks possible after The Sun ran a front-page story on Friday that said he'd been "booted out" by his wife," says Howard.
It is noted that Sterling fell sharply when Johnson unexpectedly quit the government on July 9 to protest May's Brexit plan, making him the favourite with bookmakers to become the next Conservative Party leader.
Ladbrokes has also improved the odds of May being replaced as PM by the end of the year to 3/1, from 7/4 at the start of this week (before MPs returned from their summer recess).
The bookie now quotes even money for May to be replaced next year.
"The annual Conservative Party conference takes place on Sept. 30-Oct. 3, with Brexit pronouncements from May and Johnson set to dominate the mood," adds Howard.
We however don't necessarily agree with the view that the personal issues faced by Johnson are likely to thwart any future leadership bid. If anything, getting any detracting negative news out ahead of any such attempt is a good thing.
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