Brexit Volatility Continues
GBPUSD has started the week under heavy selling pressure, as the latest political developments have seen Therese May’s Brexit negotiations sabotaged by members of her own government. Last week, traders were responding positively to news that the UK government was prepared to pay around £55 billion under the terms of a so-called “divorce bill”, in order to progress talks and move on to securing a trade agreement.
However, following early optimism, hopes have now been dashed as the Democratic Unionist Party of Northern Ireland, who are in a coalition government with May’s own conservative party, have refused to back May’s proposal to keep Northern Ireland under EU law following Brexit.
Brexiteers Backing the DUP
The Irish government has insisted that the UK does not implement a “hard border” between the South and North, citing the threat it would pose to the peace process in Northern Ireland. The move strikes another blow at May’s political standing and has raised further questions about her effectiveness in office. Along with the DUP, leading Brexiteer members in London such as Iain Duncan Smith and Jacob Rees-Morg have also backed the DUP’s stance.
UK & EU Remain Hopeful, But Time is Running Out
Despite the collapse of the talks around this issue, both May and EU President Jean-Claude Juncker have given reassurance that negotiations will continue and that both parties will stick to the agreed timeline. However, this latest development raises serious concerns that the negotiations will run wide of the scheduled timetable, leading up to an important EU summit next week. European Council President Donald Tusk has noted that; although an agreement is still possible (ahead of the summit) “it is now getting very tight”.
May to Continue DUP Negotiations
In terms of next steps, May is scheduled to continue negotiations with the DUP over the next day and has made room in her schedule for a potential return trip to Brussels on Wednesday, adding that she is “confident that we will conclude this positively”. The issue of the Irish border has risen to prime importance in the negotiations. While citizens’ rights also remain an outstanding issue ahead of next week’s summit, it is the issue of the Irish border that represents the more serious threat to the progress of these talks.
Summarising her thoughts on these matters May has told reporters; “There are a couple of issues, some differences do remain, which require further negotiation and consultation. Those will continue but we will reconvene before the end of the week and I am also confident we will conclude this positively.”
The text of the summit, which will be held on 14th – 15th of December has to be agreed upon in each of the 27-member nation’s capitals in order to be signed off at the summit and the fear now is that, if a deal takes any longer to be reached, there simply won’t be time for this.
Irish PM Surprised & Disappointed
In response to the news, Irish PM Leo Varadkar has expressed his surprise and disappointment after being led to believe that an agreement on the border issue has been reached. Indeed, just hours earlier, Varadkar’s deputy had been on radio expressing his optimism about the deal, noting that the Taoiseach (PM) had a “positive statement for the country” scheduled for the afternoon.
According to reports, the DUP was enraged by the leaking of a 15-page draft of a joint statement to be released by the UK and EU outlining that the two had agreed to concede to the Irish government’s demands that a soft border remain. Arlene Foster, head of the DUP, said that “Northern Ireland must leave the EU on the same terms as the rest of the United Kingdom. We will not accept any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the United Kingdom. The economic and constitutional integrity of the United Kingdom will not be compromised in any way.”
GBPUSD has retreated sharply today and is now heading back to the key 1.3320s-1.3340s area which has been a key price pivot over the year. Local trend line support is also sitting in the area so If price can sustain a retest of this level and find buyers, focus should remain on further upside. A break below opens up the way for a deeper correction lower.