The Pound "Drops Like a Stone" as May Rejects Barnier's Latest Irish Border Proposal
Image: © Number 10 Downing Street
- EU backstop proposal still unacceptable to UK
- Sterling in the red as 'no deal' fears grow once more
- EU's Tusk says Britain's proposal needs to be reworked
- Tusk to propose November summit to close Brexit deal
Pound Sterling has performed an about-turn and is heading lower as the pendulum on Brexit sentiment takes an inevitable turn for the worse.
Headlines suggest U.K. Prime Minister Theresa May is to reject the European Union's '"improved" offer on the Irish border.
The EU’s chief negotiator said yesterday that the EU was preparing to table a new “backstop” proposal that he hoped the government would be able to support.
But, the Times has today quoted a senior government source said that Barnier had still not dropped his insistence that Northern Ireland be treated as a separate customs jurisdiction from the rest of the United Kingdom.
"Any backstop will have to respect our red line that there is not a customs border in the Irish Sea," the source said.
Neil Jones, a dealer at Mizuho Bank Ltd. says the "Pound dropped like a stone on May's rejection of Barnier it appears."
At the time of writing the Pound-to-Euro exchange rate is quoted at 1.1247, having been as high as 1.1283 earlier.
The Pound-to-Dollar exchange rate is at 1.3132, having been as high as 1.3215.
"The EU goal posts are coming in, but the UK government posts look not to be shifting for now," adds Jones.
The Pound has rallied through September as markets have digested regular news of progress on Brexit talks while the currency also received a boost from above-forecast inflation numbers released mid-week.
Today's headline and price action in Sterling reminds us that there is further distance to cover before the matter is resolved.
The problem for the U.K. it appears remains the insistence for a backstop from the EU.
"A backdrop would also mean, however, that Northern Ireland would remain closely aligned with the EU's rules and regulations and thus effectively separated from the rest of the UK," says Valentin Marinov, a foreign exchange strategist with Crédit Agricole.
Following the General Affairs Council (Article 50) meeting held on September 18, Barnier told the press the EU "are ready to improve" their proposal on the Irish border customs question.
He adds the new plan would not involve customs checks in the Irish Sea and would respect the “territorial integrity of the UK”.
Barnier also clarified that most checks can take place away from the border, at the company premises or in the market.
We understand that this is already being proposed by the UK government under the technological solution; which already amounts to a win for May.
We are therefore seeing a lot of common ground and believe we are witnessing the endgame in this saga.
Recall, once Ireland is settled, the Withdrawal Agreement will be on the cusp of completion.
“As I’ve always said, the October #EUCO will be the moment of truth. It’s then when we’ll see whether the agreement we’re hoping for is within our grasp.”
— Daniel Ferrie (@DanielFerrie) September 18, 2018
????@MichelBarnier speaking after the #GAC50 this evening in Brussels: https://t.co/CwLkHa2Cjq #Brexit @EU2018AT ???????????????? pic.twitter.com/QLVedATROS
However, the EU does not appear ready to cede ground on the matter just yet, and all eyes now turn to developments at the informal meeting of European leaders in Salzburg, Austria.
Speaking in Salzburg, European Council President Donald Tusk told EU leaders, "today there is perhaps more hope but there is surely less and less time. On the Irish question and the framework for economic cooperation the UK’s proposal needs to be reworked."
Don't expect any Sterling-friendly concessions to come out of this two-day conference.
"Indications that the EU remains committed to its current ‘hard line’ on Brexit could send GBP lower," warns Crédit Agricole's Marinov.
Tusk says he believes talks should continue at pace as he is still aiming for an agreement to be sealed this Autumn.
"At tomorrow's meeting of the twenty-seven, I will propose calling an additional summit around mid-November," says Tusk.
Expect the market to stay nervous.
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