The aftermath of the UIK’s controversial 2017 General Election seemed to come into focus towards the end of last week after a period of uncertainty. This came as yet another blow to the new government of Theresa May already left reeling by losing its majority in the British Parliament and having to form a minority administration in combination with the Democratic Unionist Party of Northern Ireland. Initially, following the immediate dismay in the wake of the comparatively poor performance of the sitting government, Sterling seemed to rally as hopes grew for a Soft Brexit. This was paradoxically a result of the involvement of the DUP in the new administration. The paradox here is that, until the rise of UKIP, the DUP were seen as the most Euro-Sceptic of all the larger British political parties. However it is always important to note that the DUP is a party of Northern Ireland, and Northern Ireland relies on its close trading links with the Republic of Ireland. The DUP is therefore very definitely in favour of the frictionless border with the Republic and no observers could see how a Hard Brexit could be negotiated or realised if such an open border existed between part of the UK and part of the EU. The prospective reality of this eased fears somewhat as the start of the Brexit negotiations loomed. Sterling also recovered against the dollar in the wake of softer than expected US economic announcements and also because of the USA government’s own political troubles.
However, these tentative signs that all was not as grim as it looked for the pound in the immediate future were soon offset by cold, hard realities revealed by eh EU’s demeanour and announcements, and also by hawkish behaviour from Euro currencies. The European Union remained firm in its commitment to a policy of refusing to consider future trading negotiations until the finality of Britain’s exit was hammered out at the conference table, these details including the small matter of financial obligations on the UK’s part amounting to €100 billion. Perhaps not surprisingly the chart for the Euro and Sterling indicated a risk towards the downside with technical indicators firmly in the negative.
All in all Theresa May’s decision to call a snap general election in 2017 seems set fair to count as one of the most decisive home goals ever scored by a party in government. The desire was too firm up the Conservative government’s position and grant it a mandate to negotiate Brexit strongly with a country united behind a strong administration. The end result has left a weak and shocked minority government in office, beholden for its ultimate support to a small party that, in one vital area of policy, is committed to steps that would sabotage the Brexit in the eyes of many of its supporters. Thus a weakened government faces negotiations vital the country’s economic future. It is not surprising that Sterling looks set to perform negatively in most major pairs.
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