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Pound Unsettled by Cabinet Shuffle, Brexit Caution

Posted by Joseph Trevisani on Nov 9, 2017 12:17:22 PM

After falling sharply from its late September post-Brexit high, sterling has kept to a tight two figure range penned by uncertainties within and without the British government over the EU exit negotiations.

From its September 20th peak of 1.3656 the pound tumbled 4.6 percent over the next two weeks scraping 1.3024 on October 6th. Since then the majority of the price acti0n has been between 1.3085 and 1.3262.

Prime Minister Theresa May's cabinet has been shaken by the resignation of two ministers. Defense Secretary Michael Fallon quit last week amid charges of sexual harassment and International Development Secretary Priti Patel resigned on Wednesday for holding meetings with senior Israeli officials without informing Downing Street.

Ms Patel was a strong Brexit supporter and was replaced by Penny Mordaunt of similar views, keeping the balance in Ms May's cabinet unchanged.  Ms May appointed former chief parliamentary whip Gavin Williamson to replace Mr. Fallon.

The sixth round of the departure negotiations begins on Thursday November 9th. Both sides have been cautious about comments that might prejudice the talks but they remain far apart on the charges that Britain will pay to the EU for separation costs.

The Union is asking for about 70 billion euros and the U.K. is thought to have agreed to about half of that. The EU is insisting on settling the so-called divorce issues, the most important being finance and EU citizens’ rights in the UK, on the terms of the departure before attempting to define the post-exit trade relationship.

There has recently been discussion of a two-year transition period after the official departure to let the negotiations continue and permit markets to adjust to the new arrangements. 

The new-found seriousness of the talks and the cessation of incendiary rhetoric from officials on both sides has not yet turned into optimism but it will not take much for the markets to assume a solution is on the way and send their respective currencies scurrying higher. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

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