Brexit Angst Weighs Over The Pound As It Slides Against The Dollar
The Brexit drama continues as negotiators work around the clock to ensure that the UK does not crush out of the EU without a significant deal. However, prospects of such a scenario are growing dim as every new day grows into weeks. As that happens, the Pound Sterling is taking a lot of heat from the unfavorable trades against it.
Notably, the disagreement between the UK and the EU stems from the treatment of the border between the UK's Northern Ireland and EU's Ireland. So far, the British Parliament has turned down a number of offers presented by the Prime Minister on that issue.
Angela Merkel dismisses reports of putting a time limit on the Northern Ireland backstop
However, an upcoming EU summit should help to clarify the issues around Brexit. In the lead up to the summit, reports emerged that Angela Merkel, the German Chancellor, would help “to put a time limit on the Northern Ireland backstop in Britain’s EU withdrawal agreement.” However, Merkel’s office was quick to play down the news while terming them untrue.
Before the rebuttal, investors had taken the reports positively and increased their buy positions in the sterling. As a result, the currency climbed by 0.5% to $1.3122 against the US dollar. Also, the pound climbed against the Euro where one unit of the common currency bought 86 pence. However, the pound edged lower against the EUR and the greenback after a Merkel spokesman denied the reports.
The British Pound has gyrated wildly in the recent weeks as Parliament rejected three Brexit proposals presented by the PM. As such, the country has applied and won extensions to Brexit since the March 29 deadline. According to fresh reports, the UK PM Theresa May is seeking another delay for Brexit to allow time for the forging of the best deal.
The Brexit debacle is a high stakes scenario for the pound
Notably, the PM already traveled to Paris and Berlin on Tuesday to meet with Merkel and France President Emmanuel Macron. The main agenda on the anticipated meetings is to try and buy more time for the best outcome of the Brexit debacle. Apart from the Northern Ireland backstop, other sticking issues in the negotiations are the interactions between EU and UK citizens after Brexit. Notably, the UK wants a free trade agreement where UK businesses will not be subject to punitive tariffs when selling to the EU.
At this point, any outcome in the Brexit drama is possible. On the one hand, the UK could get out of the union with a comprehensive deal, and that will be a plus for the pound. However, a crushing out without a deal will see the pound nosedive.
Despite the debacle, the pound remains one of the best performing currencies so far. In the run-up to the first Brexit deadline of March 29, the British Pound had gained 3.4% year-to-date against the US dollar. Only the Mexican Peso performed better. However, the UK must work harder to avoid a hard Brexit to hedge against a significant plunge for the pound.