GBP: Supreme guidance? - Rabobank

Jane Foley, Senior FX Strategist a Rabobank, notes that as expected the UK Supreme Court has ruled against the government’s appeal and specified that Article 50 of the Lisbon Treaty cannot be triggered without a parliamentary act.  

Key Quotes

“Sterling’s wobble yesterday morning is evidence that its relationship with UK political news has altered.   Following May’s ‘hard Brexit’ indications in her speech in early October, the pound developed a binary relationship with political news moving higher on news that was construed as weakening the government’s hand.  Moving the power from the government to parliament was originally viewed as lessening the chances of a hard exit from the EU’s single market and viewed as GBP positive.  However, now that a course towards a hard Brexit has been set in motion, the loss for the government brought extra ambiguity and encouraged a few GBP sellers.”

“On Friday UK PM May will travel to Washington to meet President Trump in a meeting that has been billed as a primer to creating new trade deal between the US and the UK.  GBP has been boosted on the hope that such a deal will help offset some of the impact of the UK’s loss of free access to EU single market after Brexit.  Currently there is no trade pace in place between these two countries and it is likely that both Trump and May will use this meeting to generate positive headlines to feed their respective causes. Both leaders will be looking to use a promise of closer trading relations with one another to strengthen their negotiating position with their current respective trading partners.”  

“May has also this week laid her industrial policy and plans for a China visit to bolster UK trade.  We continue to view the forthcoming Brexit negotiations as a source of uncertainty and see GBP as vulnerable over the medium-term.  However, for now May is having some success in countering accusations that the government is muddled and has no plan.  While May’s packed agenda should bring solace to GBP in the near-term, we expect Brexit fears to gain ground once the negotiations with the EU gather pace after Article 50 has been triggered and look for a move towards EUR/GBP 0.89 by year end.”