British Pound Rallies as EC Approves Draft Brexit Treaty
What’s been happening?
Pound Sterling – UK Markets
The British pound gathered strength on Thursday and rose to its highest level against both the euro and the US dollar on the latest Brexit developments. After the European Commission announced that it approved the draft agreement text, the European Council President Donald Tusk said that he sent the Political Declaration to the EU27. “The Commission President has informed me that it has been agreed at negotiators’ level and agreed in principle at the political level, subject to the endorsement of the Leaders,” Tusk added. According to the draft document, the EU will recognize the UK’s independent trade policy and will stay determined to replace the backstop in the future. The document further notes that the EU-UK ties after the transition period can be extended for up to two years and Britain will continue paying the EU budget during that period. Finally, both sides are said to consider technological solutions to prevent a hard border on the island of Ireland.
Speaking to reporters following this announcement, British Prime Minister said she will update the Parliament on the declaration text later in the day and added that a deal was within their grasp and that she was confident they could finalise the agreement on Sunday. However, several news outlets reported Spain was unhappy with the fact that the text regarding Gibraltar wasn’t revised and would vote against the deal. Additionally, Tory MPs in Scotland voiced their concerns over the commitment to a 'new fisheries agreement' on quotas and access to waters.
In her prepared text, PM May told the MPs that the deal ends free movement and protects the union. “We will be able to negotiate trade deals during the implantation period,” May added. “We have firmly rejected the link between access to our waters and access to our markets.“ Later in the day, PM May’s spokesman made it clear that the UK had no further demands in negotiations ahead of Sunday’s summit and explained that PM May will be seeking to persuade members of her party and the DUP on the merits of the Brexit deal.
US Dollar – US Markets
Thanksgiving holiday in the United States.
Euro – European Markets
The shared currency recorded small gains against the dollar while struggling to stay resilient vs the pound sterling on Thursday. In the account (minutes) of its latest monetary policy meeting held on Oct 24-25, the European Central Bank said that policymakers generally agreed that the recent data were weaker than expected but were in line with the economic growth forecasts. “Policy remains on steady track in line with market expectations. Trade tensions may be being offset by higher US imports,” the ECB noted. “A remark was made that the number of arguments pointed towards risks to growth tilting to the downside.”
In an interview with La Stampa, Austria's Finance Minister Hartwig Loeger argued that Italy could pose stability risks for the whole Europe and added that Italy must ‘pay the consequences.’ Meanwhile, Pierre Moscovici, European Commissioner for Economic and Financial Affairs, reiterated that it would be in everyone’s interest to reach a budget agreement. On the other hand, both Italy's deputy Prime Minister Matteo Salvini and Prime Minister Conte stated that the Italian government would not backtrack on their budget proposals.
Later in the day, “Confident that underlying inflation pressures are rising, but it will take time and it requires monetary policy to remain accommodative,” the ECB's chief economist Peter Praet told German daily Handelsblatt. Touching on the monetary policy outlook, Praet argued that it was too early to discuss any adjustment to key interest rates and their constellation.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Friday. Investors will be paying a close attention to Brexit headlines.
US: The IHS Markit will publish November preliminary manufacturing and services PMI reports.
EU: The Statistisches Bundesamt Deutschland will announce the third quarter GDP growth numbers from Germany, which is expected to stay unchanged at 1.1% on a yearly basis. Furthermore, the IHS Markit will release the PMI data for the eurozone, France and Germany.