The Sterling rallied Thursday to $1.2870, up from $1.2776 on Wednesday, after news that the UK and the European Union arrived at a preliminary understanding of the nature of the relationship the two will have after the UK exits the EU. The movement started amid an otherwise silent day in the Forex markets due to the Thanksgiving holiday in the US. Across the Channel, the European Council President Donald Tusk revealed news of a political declaration on future relations.
Hopes of Brexit agreement boost Pound
After overnight discussions between the UK and the EU, the 26-page draft political declaration – explaining future trade and security relations – has been worked out. The accord revealed by President Donald Tusk of the European Council on Thursday represents a further stride on the road to a smooth departure for the UK from the bloc. Notably, last week, the UK and the EU reached an agreement on a 585-page “withdrawal agreement” covering the separation of Britain from the EU.
A political statement issued by the European Commission states “establishes the parameters of an ambitious, broad, deep and flexible partnership.”
It states that the Brexit transition period of 21 months, which starts when the United Kingdom moves out of the EU at the end of March 2019 but remains connected to its single market and customs union, could be extended by two years.
Commenting on the agreement, May said it “delivers for the whole UK family, including Gibraltar.” She further stated negotiations had now reached a “critical” stage.
The legally binding “withdrawal agreement” signed last week spells out important terms for Britain’s organized exit from the bloc in March 2019. Now, with an agreement on the draft text of the future relationship, the EU leaders are anticipated to sign both agreements at a special summit that is scheduled to take place in Brussels on Sunday.
Among the hurdles, the UK hopes to get the Gibraltar issue resolved with Spain. Madrid has threatened to topple the deal over the manner in which the situation of Gibraltar – a small British territory on Spain’s south end – was handled. May spoke late Wednesday to Spanish Prime Minister Pedro Sanchez about the problem, but it is still unclear how it will be resolved.
In addition to the objections of Spain, EU fisheries policies also need to be addressed before the final agreement is announced on Sunday. May still has to push through any Brussels agreements, which could be a problematic parliamentary vote next month.
In front of 10 Downing Street, May said yesterday, “This is the right deal for the U.K. It delivers on the vote of the referendum. It brings back control of our borders, our money and our laws and it does so while protecting jobs, protecting our security and protecting the integrity of the UK.”
Prime Minister Theresa May will also fly to Brussels on Saturday to take part in additional meetings and resolve last-minute issues. However, not everyone is happy with the developments. Opposition Labour Leader, Jeremy Corbyn, criticized the agreement as “26 pages of waffle” which gave no certainty for UK enterprises or citizens.
Corbyn said: “This is the blindfold Brexit we all feared — a leap in the dark. What on earth has the government been doing for the past two years?”
SNP Westminster leader Ian Blackford alleged Scotland’s fishing rights have been “thrown overboard as if they were discarded fish. So much for taking back control, more like trading away Scotland’s interests.”
The vital point about the proposed Brexit withdrawal agreement is that, once it is ratified, the UK will have no legal way out of it unless the EU allows and replaces the deal with a new agreement.
Still, the acceptance of the draft agreement will keep the hopes of Pound bulls alive. Therefore, we can expect the Pound to remain bullish in the week ahead.
Technically, the GBPUSD has found support at 1.2680. The next significant resistance is only expected at 1.3260 levels. The stochastic oscillator is also near the oversold region. As a result, we can expect the Pound to rally in the short-term.
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