There was quite a bit of fanfare around the signing of what is now called the “Windsor Protocol”. The agreement between the EU and the UK was supposed to put an end to the Northern Ireland Protocol that had dogged the Brexit procedure for years. While the pound initially bounced up in expectations that the relationship between the economies would improve, there have been some hiccups that have appeared.
The pound has subsequently traded sidewise, buffeted by a series of other macroeconomic issues as well. The uncertainty over the protocol has been another obstacle in keeping the pound from moving higher. And it appears that uncertainty will last for quite a bit longer. On the other hand, if it’s resolved, there could be another bump in the currency pairs. So, here are some things to look out for in the Windsor Protocol process that could get the markets riled up:
The issue is bigger than the Protocol
The situation around Northern Ireland is delicate, complicated and has a long history. But there are a couple of key things that are important for how the market reacts. The main issue around getting the Windsor Protocol isn’t so much around getting enough votes in Parliament. The vast majority of Tories and an even larger number of Labour MPs are expected to vote in favor. Which means for all practical purposes, it can be considered a done deal.
But there are some internal issues that are putting the vote on hold, which raises uncertainty about other things beyond the Protocol issue. And those are more relevant to the currency markets. The first, of course, is the relationship with the EU; that if the Windsor Agreement is enacted without major objections, it could help reduce tensions.
The pending trade issues
The other issue is the special relationship with the US. The Biden Administration has taken a dim view of the UK’s pressure campaign to get a better deal out of the EU. This has led PM Sunak to effectively give up on an enhanced trade agreement between the two countries. At least until the Protocol issue is resolved.
Number 10 is hoping that the issue will be resolved by the end of the month, and invite President Biden to Northern Ireland for a celebration of the anniversary of the Good Friday Accords. It’s hoped this will help smooth over the differences between the countries and get trade deal discussions back on track.
When will the objections be over
PM Sunak is not pushing the agreement into Parliament, because he’s trying to minimize the impact from Tory rebels on the vote. That could provide a basis for demands for other concessions in other areas.
Those Eurosceptic Tories have essentially said that they will vote against the agreement if the DUP finds it unacceptable. For its part, the DUP is holding a week-long panel review of the agreement to see if it’s acceptable to them. If the panel approves, then the Windsor Agreement could be quickly approved with minor dissent in Parliament, and give the pound another boost.
If not, it would kick off another round of negotiations, and with increased uncertainty, drag on the pound.
