The possibility of striking a Brexit deal before the weekend has helped to stabilise the pound as it recovered some ground, on Thursday. However, tensions are building ahead of the weekend as talks continue. This means that any Brexit-related headlines will create pound volatility and move the market considerably.

The clock is ticking

While markets are hopeful that a deal will be reached, the fact that the clock is now ticking with little space for manoeuvres means that the pound will remain sensitive. The Telegraph reported that Barnier told EU ambassadors that the UK has become more flexible and lowered its demands in regard to UK waters post-Brexit, demonstrating that the two sides are closer to an agreement. Fisheries and governance remain unresolved, with the latter to be negotiated once all other agreements are settled. Talks could now focus on the percentages involved in fisheries, but France might prove to be uncompromising on its fishing demands. According to The Telegraph, "Fishing nations such as France, Denmark, the Netherlands, Belgium and Spain fear Mr Barnier may cave too easily to British demands as talks enter their endgame. Paris insists the UK red line of annual fishing negotiations is unacceptable.” France has already clarified that it will veto any deal that goes against their interests.

A report in The Times said that "France and other hard-line countries are pushing for no deal in Brexit talks to soften up Britain before a reset in negotiations next year, unless the government makes significant concessions in the coming days," and unless the UK "backs down over the next 48 hours", a period of 'no deal' will "bring a chastened Britain back to the table next year".

The BBC's Europe Editor Katya Adler said that Brussels believe a deal will be possible in the event that the UK makes significant steps to meet the demands regarding fisheries, competition rules and governance.

Talks continue in London

Negotiations are at the final stages, but it appears that any last hurdles will require, maybe not divine intervention, but at least some help from leaders from the UK, EU Commission and France. Both Wednesday and Thursday, saw negotiators working well into the night for the final push.

On Friday, The Telegraph reported that talks will find Boris Johnson and Emmanuel Macron coming head to head this weekend, with France interested in securing access to fish in British waters.

According to certain sources, Macron's officials have been "lobbying hard" among different member states to agree to added demands on fishing, state subsidies and non-regression clauses, and these will be discussed by both the PM and the French president over the weekend.

EU member states could also veto any deal as they continue to have concerns about state aid mechanisms and how to enforce agreed environmental and labour standards. France and Denmark are reluctant to lose their fishing shares in UK waters.

Indeed, there is not much time left now, as negotiations continue and the upcoming EU leaders’ meeting on 10 and 11 December 10-11 means that a final deal needs to be ready to be agreed. Sterling will make significant gains if a deal is announced in the coming weeks and it could potentially continue to rise.

 

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The British Pound has remained under pressure on Friday, especially after Thursday’s losses due to disappointing news that the Brexit negotiations have hit an impasse. Today’s (24/07/2020) better than expected retail sales did not help push the pound higher against its major rivals.

Brexit and Covid-19

Despite positive macroeconomic data, the coronavirus pandemic and concerns about the state of the Brexit trade negotiations have weighed on the pound. As the Guardian reported, on Friday morning the release of “the retail figures are doing little to support UK stocks with the FTSE 100 down 1.36% and the more domestically focused FTSE 350 down 0.6%.”

Positive Retail Sales’ Numbers

The easing of lockdown in mid-June helped UK retail sales beat forecasts in June. The Office for National Statistics has reported a 13.9% month-on-month rise in UK retail sales last month, marking an 8% uptick. Even for former Bank of England policymaker Andrew Sentence, the figures highlighted that the UK was on its recovery since the Covid-19 outbreak. The retail sales’ increase was the result of consumers spending for DIY and home improvement products due to the lockdown, with shops selling hardware, furniture and appliances doing particularly well, and reaching near-pre-lockdown sale levels.

With the easing of lockdown measures, consumers preferred real physical shops rather than online shopping, as the ONS noted that the proportion of online sales retreated from its record peak in May. Online spending, however, remained at 31.8%, higher than February’s 20%. UK total retail sales are now just 0.6% lower than February before the lockdown.

ONS deputy national statistician Jonathan Athow said:

“Retail continued to recover from the sharp falls seen in April, with overall sales now almost back to pre-pandemic levels. But there are some dramatic differences in sales across the retail industry. Food sales continue above their pre-pandemic levels due to the closure of cafes, restaurants and pubs. Online sales have risen to record levels, and now count for £3 in every £10 spent. On the other hand, clothing sales remain depressed and across the high street sales in non-food stores are down by around one-third on pre-pandemic levels. The latest three months as a whole still saw the weakest quarterly growth on record.”

With the exclusion of fuel sales, due to the lockdown and limited travelling, the level of sales was 2.4% higher than in February. According to figures, Britain’s economy shrank by more than a quarter in March and April and recovered slightly in May.

Is the UK economy recovering?

Former Bank of England policymaker Andrew Sentence said that the figures highlighted the UK was on its recovery since the Covid-19 outbreak. The Bank of England’s chief economist, Andy Haldane, has also pointed to a V-shaped recovery with the economy growing by around 1% a week, something that many of his colleagues have questioned. The British Retail Consortium said that spending among large high-street chains was 3.4% higher this June than last year.

As investors await the release of more figures to confirm expectations of a sustained economic recovery, the pound will remain under stress with Brexit as well as the growing number of deaths from Covid-19. If you are buying a home overseas or want to transfer funds to family and friends living abroad, get in touch with our friendly  Universal Partners FX team. UPFX’s dedicated foreign exchange specialists can help you access the most competitive exchange rates and make your currency transfers stress-free.

The British Pound pushed higher after investor sentiment improved due to the positive news that a deal between EU leaders have been reached. The euro also rose higher. The deal includes €1.8tn in spending, with a €750bn rescue fund to deal with the coronavirus pandemic. €390bn out of the €750bn will be made in grants.

Brexit trade negotiations a key driver for the pound

However, Sterling continues to remain under pressure as Brexit developments can thwart sentiment, while any updates from the Bank of England in relation to negative interest rates can also create further concerns.

Brexit negotiations will take place from Tuesday to Thursday and will cover such issues as trade in goods, fisheries, energy, transport and participation in certain EU programmes. The round will end with a plenary session on Thursday. The Brexit chief negotiator Michel Barnier will hold a press conference and investors will be watching to see any signs of progress regarding the latest round of EU-UK trade negotiations which will significantly boost Sterling.

Brexit trade deal and Tory rebellion

Boris Johnson faces a rebellion from Tories who want to pass an amendment to the Trade Bill that will allow the House of Commons and House of Lords to vote for a trade deal agreed between the UK and any other country.

After Brexit, the UK will need to renegotiate trade deals, something that has been celebrated by Brexiteers and criticised by Remainers. For many, such trade deals with countries like the US will sacrifice certain standards that were followed while the UK was under European legislation. After leaving the European Union at the end of this year, Britain will need to be extremely cautious when striking new deals that will be beneficial to its people rather than meeting the demands of political agendas. The government’s reluctance to allow its lawmakers and the people’s representatives to have a say in the negotiations, goes against its own promise of taking back control from Europe and giving it back to the UK people. Additionally, it denies any scrutiny and seeks to pass deals without a dialogue, enforcing laws that could have repercussions on the social and political lives of its citizens for years to come.

Post-Brexit trade talks on a standstill

EU officers have complained that trade talks have been “going round in circles”, and Downing Street said that “significant differences remain on a number of important issues.” This is what is also expected to be reiterated on Thursday when Barnier appears at the press conference, as both sides are anticipating a stalemate.

Another round of talks will begin the week of August 17, but Germany said that it won’t begin to focus on the negotiations until September.

Boris Johnson does not want talks to “drag on into the autumn”, but he will need to make some concessions to see any movement forward. “We’re waiting for the UK to move,” an EU official has said according to the Financial Times. Johnson has talked of trading with the EU like Australia, but he would need to secure a trade deal that will eventually confirm his competency as a Prime Minister and avoid a disorderly Brexit that could lead to calls for Scottish Independence.

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