Losses for GBP after DUP blocks plans for Irish border after Brexit

The pound continued to weaken yesterday as Prime Minister Theresa May struggled in vain to find an agreeable all-round solution for the issue of the Irish border.

The pound is largely on gloomy form this morning. GBP/EUR is flat at €1.1332, and GBP/USD is also stagnant at US$1.3407. GBP/AUD has made gains of 0.3% to A$1.7686, but GBP/NZD has fallen half a per cent to NZ$1.9413. GBP/CAD is flat at C$1.7028.

Can the UK government resolve the latest crisis threatening to delay Brexit trade talks even further? Read on to find out what Theresa May is up against…

What’s been happening?

The pound sank yesterday as Brexit continued to weigh on market sentiment.

After months of worrying about the divorce bill, markets have now realised just how complex the issue of the Irish border is.

Hopes of an easy solution had been raised on Monday after the UK government tentatively agreed to allow EU customs union regulations to apply to Northern Ireland after Brexit, in order to avoid a hard border with the Republic.

However, Northern Ireland’s DUP - the party whose support Theresa May relies upon in order to give her a majority in Parliament - refused to support such an agreement, wanting there to be no regulatory difference between Northern Ireland and the rest of the United Kingdom.

Fears that this could be a hard situation to resolve, especially given there is only a week to go before the European Council will vote upon whether or not to move talks on to the issues of trade, pressured the pound lower.

A worse than expected slump from the UK services PMI further weakened GBP/EUR, even though Eurozone retail sales data has shown a large decline on the month.

GBP/USD was able to make choppy gains, however, after the headline US ISM non-manufacturing index dropped from 60.1 to 57.4; economists had only expected a drop to 59.

What's coming up?

There is no UK data set for release today, although given that Brexit will continue to steal the headlines that’s a rather moot point.

Any signs that Theresa May is making progress on securing an agreeable deal regarding the Irish border will lift the pound, while indications that the situation remains unresolved will weaken Sterling further.

Eurozone retail PMIs could fuel gains for the euro if they show a strong performance from the consumer-driven sector.

Meanwhile, the key decider of the US dollar’s fate today will be the ADP employment report.

Although there is no proven correlation, markets often believe that the ADP report foreshadows the performance of the non-farm payrolls report: a much more influential release published two days later.

Considering the ADP report is forecast to show a slowdown in employment growth, markets may be cautious ahead of Friday’s NFP and GBP/USD exchange rate could be allowed to drift higher.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.