The rollercoaster ride that is the British pound has picked up the pace. The pound soared by more than 1% this afternoon on reports that UK and EU negotiators had agreed to a draft text of a Brexit agreement. Ever since the Brexit referendum in 2016, the possibility of Britain crashing out of the bloc without a deal spelling out the details of its future relationship with the EU—on trade, travel, security, and a host of other issues—has loomed large over markets.
The last sticking point had been over the so-called “backstop” to avoid a hard border between soon-to-be ex-EU member Northern Ireland and the Republic of Ireland, which remains an EU member. Talks have gone down to the wire, as time is short to agree a deal in time to put to European leaders, parliaments, and other bodies before Brexit becomes official at the end of March next year. The odds of the dreaded no-deal Brexit fading pushed the pound to its highest level in six months against the euro.
But this isn’t yet a done deal.
The contents of the draft agreement haven’t yet been revealed. British prime minister Theresa May must first get support for this deal from her cabinet, which is still reeling from the resignation of one minister at the end of last week who said Britain was “on the brink of the greatest crisis since the Second World War.” There will be a special cabinet meeting tomorrow and tonight May is trying to pre-sell the deal to ministers one at a time. Oh, and the 27 other EU members will also need to look at the agreement; they will do that tomorrow.
Then, the big test: May must get the deal passed through parliament. This is a major hurdle as there is opposition on all sides. Her own Conservative party lead a majority coalition but there is resistance from staunch Brexiteers within the party who believe the deal will make the UK subordinate to the EU and would rather force a clean break from the bloc. Former foreign minister Boris Johnson said today that he will vote against the deal, calling it “utterly unacceptable to anyone who believes in democracy.” There are also members of her party who are pro-EU and now think instead of passing an agreement there should be a second referendum instead.
The opposition Labour party have set up tests that make it easy to reject the deal. Labour leader Jeremy Corbyn said in a tweet: “From what we know of the shambolic handling of these negotiations, this is unlikely to be a good deal for the country.” Meanwhile, the DUP, the Northern Irish party May relies on for her slim parliamentary majority, have already said it’s going to be a “very, very hard sell.”
The uncertainty has propelled pound volatility to its highest level since January 2017. That, we can be sure, is going to continue.