The market largely held its breath yesterday as the EU debated the fate of the UK’s extension request; hovering around the 1.1600 mark on GBPEUR and 1.2875 on GBPUSD. Unfortunately, the pound’s short term calm has been disrupted by a single dissenting voice in Europe – that of the French President, Emmanuel Macron.
The bulk of the EU member states are happy to grant the UK the three-month extension stipulated in the Benn Act, however, the French premier has taken a far more hardline stance by pushing for a short extension to the 15th of November and no further.
Whilst this may upset MP’s seeking a general election or endless debate, a short delay could actually play out well for the pound – a sentiment that has been reflected in the rates with sterling keeping the majority of its gains around the averages mentioned above.
Essentially, a short delay fulfils the requirements of the Benn Act for the government to ask for an extension. From this, the government will impress upon MP’s that they have two weeks to “get Brexit done” with the deal they have already passed at second reading – they can also make it clear that this is now what the EU wants.
The pound will now be involved in a tug-of-war between the French and the Irish, with the latter pushing for a three-month delay as standard. The issue now is that the extension length must be agreed unanimously between the member states so the pound is expected to be dragged around by the headlines once again while we wait for an outcome.
Have a great day ahead.