Date: 07 Feb 2019
British Prime Minister Theresa May heads for crunch talks with European Union officials in Brussels today, with PM May facing an uphill battle as she seeks to renegotiate the terms of the United Kingdom’s withdrawal agreement that she signed with the EU last year. British lawmakers overwhelmingly rejected the Prime Minister’s first Brexit deal and have urged her to amend the controversial Northern Ireland backstop.
Warning signs are beginning to emerge that European Union leaders will refuse to give any concessions to Theresa May, as stated by European Council President Donald Tusk earlier this week. Mr Tusk openly said that the withdrawal agreement is not open for renegotiation and he hopes to hear realistic suggestions from Theresa May in Brussels today.
PM May faces further staunch resistance, as she meets with the European Commission President Jean-Claude Juncker, who is well-known for his commentary that the UK should not leave the European Union and that the UK can still reverse Brexit altogether. Markets are starting to appear more nervous, it indeed difficult to see how a compromise can be found over the Northern Ireland backstop issue.
Theresa May had scheduled meetings with the main Northern Irish parties at Stormont House in Northern Ireland earlier this week, noting that she is working with UK lawmakers, the Irish Government and the European Union to find a way to meet the March 29th exit deadline and still find a deal that avoids a hard Irish border.
Aside from the Good Friday agreement, which ended years of sectarian violence in the British province, Brexiteers fear that the backstop would keep Britain tied to EU trade rules indefinitely and would ultimately weaken the union in place between England, Wales, Scotland and Northern Ireland.
Today’s meeting comes on the same day as the Bank of England decide on interest rate decision and release the central bank’s quarterly inflation report, with British pound and FTSE traders braced for volatility. Disappointing news from Brussels is likely to weigh heavily on sterling and UK stocks, regardless of the outcome of today’s BoE meeting.
GBP/USD Daily Candlestick Chart | Source: ActivTrader Platform
Sterling has been under pressure for much of the week, after the United Kingdom’s Services PMI slumped to 50.1 last month, marking the lowest Services PMI reading for two-and-a-half years and the second-weakest since December 2012. The services sector makes up nearly eighty percent of UK GDP and fell due to heightened political uncertainty and UK business concerns over a hard-Brexit scenario.
The GBP/USD pair is likely to remain under pressure while trading below the 1.3000 level, key medium-term support is located at the 1.2800 and 1.2660 levels. Key resistance to the upside is currently found at the 1.2970 and 1.3095 levels, with the 1.3200 level the very top the sterling’s recent range.
Written by Nathan Batchelor, External Analyst
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