The pound has jumpedyesterday as a draft declaration setting out the framework for future relations between the EU and UK has been agreed on both a negotiator and political level. Recently reported stumbling blocks, in particular issues with fishing rights and Gibraltar seemed to have been overcome. Technological solutions will also be considered to prevent a hard border between Ireland and Northern Ireland. Donald Tusk, President of the European Council, tweeted “I have just sent to EU27 a draft Political Declaration on the Future Relationship between EU and UK”. He goes on to say that a deal has been agreed in principle, subject to the endorsement of the leaders which is likely to take place at an upcoming emergency EU summit. If leaders are happy with the deal then it will go to the House of Commons for a meaningful vote which is likely to be a sticking point.
Eurosceptics are likely to jump on areas which keep the UK bound to the EU, such as the use of the European Court of Justice (ECJ) to settle disputes of EU law. Interest will now move to see if the latest agreement prompts any further letters to be sent by conservative MPs to the 1922 committee, currently, there are 26 publically declared letters which is short of the 48 required to table a vote in no confidence in Theresa May. The PM is due to make a statement to parliament at 14:30 GMT.
Sterling has enjoyed a rally as fears that European leaders may oppose the deal seem to have subsided. Now that it’s looking likely an agreed deal can be presented to UK parliament, sterling will now focus on more domestic issues such as any attempts to unseat the PM and whether there is enough support to put the agreed draft into law. Theresa May will need cross-party support in order to get an agreement legally binding, this is likely to be make or break for Sterling with optimism of an agreement pushing GBPUSD up to 1.4, levels we traded back in April. No agreement in parliament will up the chances of a no deal, a scenario which could see moves down to early 2017 levels around 1.2.