Sharp drop in GBP as top lawyer fails to back Brexit breakthrough

Summary:

  • GBPUSD hands back gains after comments from AG Cox
  • Government's top lawyer fails to fully support backstop breakthrough
  • UK GDP grows faster than forecast

Pound swoons as Cox fails to support Brexit breakthrough

There’s been a swift move lower in the pound in recent minutes after the government’s top lawyer failed to verify claims that the latest concessions from the EU amount to a legally binding guaranteed on the backstop in what appears to be a major false dawn for PM May. Attorney general Geoffrey Cox has said that the new deal will “reduce the risk” that Britain could be trapped in the Customs Union, but this is unlikely to be enough and has sparked an angry reaction in the pound. The GBP/USD rate is now trading back around $1.3050 and lower by over 100 pips in recent minutes. The bulk of Monday’s gains have now been handed back and it looks like any hopes of an unlikely victory for the PM later has just been extinguished.    

GBPUSD has fallen sharply, down by almost 200 pips in the last half an hour after this news broke, which seems to suggest May's breakthrough has been exaggerated. Source: xStation

 

UK economic growth tops estimates

According to the latest macroeconomic data, the UK economy made a solid start to the year, with growth in January coming in better than expected. GDP month-on-month rose by 0.5% compared to a consensus forecast of +0.2%, marking a pleasing recovery after the previous month saw an unexpected decline of 0.4%. The data also showed decent beats in manufacturing and industrial production and helps a little to alleviate some of the pessimism seen at the back end of last year. Having said that, Brexit remains a huge elephant in the room, and is very much front and centre of the markets’ mind at present, with economic data on the back burner.   

The latest data from the UK has shown a pick-up in both industrial and manufacturing production although these remain at depressed levels compared to recent years. Source: XTB Macrobond  

 

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