After recovering some ground on Wednesday and Thursday, the pound dropped back once more against the euro and dollar. The moves came following yet another Brexit blow to Theresa May’s hopes of getting her withdrawal agreement through Parliament. The meaningful vote – which was originally supposed to take place on 11 December – was postponed as May faced a crushing defeat. Since then, she has faced a no confidence vote and been forced to traipse around Europe seeking assurances.
Many felt this was futile and it certainly looks that way at present, as EU leaders rejected May’s fresh proposals. Her appeals were largely centred on the idea of the EU having the target of terminating the Irish backstop no more than a year after it came into force. The idea had been supported by Germany’s Angela Merkel and Austria’s Sebastian Kurz, but was roundly rejected by Ireland, France, Sweden, Spain and Belgium. Those nations felt that the UK Prime Minister would still struggle to get the technical concession through Parliament.
It is a devastating blow to May and it leaves her with very little breathing room. As it stands, it appears she will be forced to put what are essentially the exact same proposals to Parliament in January. Given that nothing of note has changed, it will likely be heavily defeated as it would almost certainly have been originally. There are suspicions that May’s only chance now is to delay the meaningful vote so much that MPs will face the choice of accepting her proposals or exiting the EU without a deal.
Labour has said it will do everything it can to prevent this from happening. If May does this, it would be faintly unbelievable, given how much appears to be at stake. The UK has tried holding the EU to ransom to no avail and it now looks as if the Prime Minister might well hold the House of Commons to ransom to agree a deal that could hardly be further away from taking back control. If course, that’s not to say this will happen – the truth is that things are as uncertain as they have been. The negotiations have been going on for 18 months now and nobody can really be sure what will happen next.
Which, again, is the cause for sterling’s demise. Its volatility this week has been particularly pronounced, but it would not be a surprise to see more of the same before the year is out and throughout January. Were the UK to exit the EU without a deal – which is still very possible – sterling would likely weaken sharply and we could see levels not seen for years. Let us hope that does not happen.
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Today we have the eurozone’s inflation rate for November, with the UK’s set for release on Wednesday. We will also see the Federal Reserve’s interest rate decision that day and, while it is widely expected the Fed will hike rates again, it will be interesting to see what policy makers have to say about further hikes in 2019. It was previously felt that there would be a few hikes, but recent inflation data has relieved some pressure to act. If there are signals they are considering a more dovish outlook then the dollar will likely slide. It could be another interesting week.