Having been in a perpetual state of fluctuation since the results of the EU referendum were revealed, the pound showed some significant growth, providing a very welcome glimmer of hope for businesses and consumers alike in the wake of last week’s Brexit breakthrough.
With Prime Minister Theresa May’s announcement that negotiations on the future relationship between the UK and the EU had finally entered the second phase, following agreements on major issues like no hard border in Ireland, and the protection of rights for EU citizens living in the UK and UK citizens living in the EU, there was a collective sigh of relief.
Why did the pound rise?
It seems that European Commission President Jean-Claude Juncker’s recognition of ‘sufficient progress’ was enough to allay at least some of the uncertainty surrounding the outcome of the whole Brexit process. This greater optimism about the reality of reaching a fair deal saw the value of the pound rise 0.3 percent against the US dollar and 0.4 percent against the euro, with notable rises also observed against the Japanese yen, the swiss franc, the Australian dollar and the Canadian dollar, amongst others.
Part of the agreement made so far ensures the ‘continued availability’ of imported products on the UK market before we withdraw from the EU, and includes a promise on both sides to keep any disruption to businesses and consumers to a minimum when the time to leave eventually does come. Much of the pound’s floundering had been due to fears of no trade deal and concern amongst businesses over how to pitch their prices as a result, hence why a step closer to a sense of clarity regarding these issues bolstered the pound.
Will it last?
Whilst it’s clearly a big step in the right direction regarding security for UK businesses, it is worth pointing out that there is still a long way to go, and with no country having ever departed the EU before, there can be no guarantees as to how the rest of the process will play out.
EU sources were quick to stipulate that the UK should not expect a ‘special’ deal that sets them apart from other non-EU members, which was a blow to those still lobbying for retention of access to the single market and the customs union. However, the UK’s Brexit secretary has since said that the likelihood of ending up with the much feared no trade deal has ‘dropped dramatically’ given the recent breakthrough, explaining that the government is now seeking to try and secure a ‘Canada plus plus plus’ agreement, which would see us take the best elements from existing deals with other non-EU members such as Canada, Japan and South Korea, whist adding details specific to the UK’s needs.
Knowing that discernible progress has been made and that there are at least plans in action to supposedly secure the financial future of UK businesses could hopefully prove a balm to keep the pound steady moving forward, but with many obstacles still to overcome, it is largely a waiting game for now, and it would be foolhardy to assume that the pound is out of the woods just yet.