Boris, Britain & the EU
Following a 48 hour summit last week, UK prime minister David Cameron finally penned an agreement with the EU which he and other the member states felt was beneficial for both parties. A date was the set for the in/out referendum for June 23rd, and the Pound benefited from the breakthrough.
The deal is as follows:
- “ever-closer union” (for EU member states) will not apply to the United Kingdom
- there will be “an emergency safeguard” – the right to veto new legislation that might discriminate against non-Euro currency users
- there will be an “emergency brake” on migrants’ in-work benefits, in exceptional circumstances
- child benefit will be paid at “cost of living rate” in migrants’ originating country.
The first two points are hugely significant in protecting British sovereignty and will strike a blow to pro-Brexit campaigners. Enter Alexander Boris de Pfeffel Johnson voicing his support for Britain to leave the EU, undermining all Sterling strength gained by Cameron’s deal.
With the referendum date set and MPs free to “pick sides” to support and cabinet ministers with public opposing opinions, there will be significant political headwinds for Sterling over the next four months, and potentially for years if an “out” vote is victorious. The last UK/EU referendum (then the EEC) was held in 1975 and much has changed since then (including Jeremy Corbyn now supporting the “in” vote), with even “pro-EU” campaigners conceding more changes are needed.
We start the week with the Pound’s Friday gains reversed, notably falling the most it has done in the last 11 months against the Dollar after London Mayor Boris Johnson, who is one of the UK’s most popular politicians, said he would campaign to leave the EU. Although there is now clarity on the end date to this ‘saga’, the political split and uncertainty up until then will likely curb any Pound gains.
Friday was a quiet day on the datafront for the Eurozone, and much of the volatility was seen against the Pound following UK Retail sales figures and “Brexit” talks. The pair briefly reached 1.2928 early in the day but lost that momentum and fell 0.73% to find support at 1.2834. EURUSD opened Friday at 1.111 before falling to find support at 1.1079 as weak German PPI data weighed on Euro sentiment. The pair did recover and opened this morning at 1.1116. Today the Manufacturing and Services PMI figures are due out for the Eurozone.
Data to watch: 8.30 German Manufacturing & Services PMI. 9.30am Eurozone Manufacturing & Services PMI. 2.45pm US Manufacturing PMI.