Brexit to the fore

Britain moved closer to a Brexit deal last night as PM Theresa May’s Cabinet approved the proposed deal after five long hours of deliberation. There are still major hoops to jump through in the form of Parliament approval but this is major development after months of impasse.

Pound rises then sinks, FTSE holds

The proposal is a broad-brush strokes deal that leaves many market-relevant details yet to be determined and though the currency market’s first reaction was positive sterling started to weaken again and lost 0.94% against the dollar and 0.93% against the euro. Part of the pullback comes as detail begun emerging on what the deal will contain. For instance, the co-operation between the UK financial services industry and the EU’s will be covered by something called equivalence. Equivalence means that UK banks and insurers will no longer have unlimited access to customers across the EU and explains why banks, property developers and retailers are among the biggest FTSE fallers this morning.

If the proposal passes the various political hurdles it would cut down on the uncertainty that has governed bonds and currency markets over the last months, it would reduce some of the volatility in sterling and potentially push UK yields higher. Given that the Bank of England has been holding back on its tightening programme this year because of Brexit, a smooth deal would increase the likelihood of the Bank raising rates faster than expected to counteract the effects of inflation and wage increases.

An hour is a long time in politics

But as they say, an hour is a long time in politics and since the markets opened the UK Brexit Minister Dominic Raab has handed in his resignation, a move that hit the pound instantly. The PM will present the proposal to Parliament later today. Expect volatility across all markets until there is final yay or nay on the draft proposal.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.