Pound under fresh Brexit pressure as May falters
The pound faced renewed pressure yesterday after the UK warned it was prepared to walk away from Brexit talks and Theresa May's commanding double-digit lead in the polls receded to nine points.
Sterling flirted with a fall below $1.30, and edged close to 86.5 pence against the euro. Added to that, German Chancellor Angela Merkel sent the euro to a six-month high after she said the common currency was "too weak".
The pound had risen in recent weeks, granting a small reprieve to Irish exporters, in the wake of the UK prime minister's announcement of a snap election.
At one point it was estimated she had a 20 percentage point lead over Labour. But the gap has narrowed to between nine and 13 points, with Ms May now facing a public backlash over Conservative Party plans to reduce financial supports for elderly people.
The pound is also under pressure after Brexit Minister David Davis warned over the weekend that Britain would walk away from the talks if the bill demanded by Brussels is above €100bn. Ministers from the remaining EU member states agreed a common Brexit negotiating plan yesterday, telling London that there will be no talks on a new trading relationship until the controversial issue of what it owes is settled.
Dermot O'Leary, economist at Goodbody stockbrokers, said there could be political fireworks once the talks begin. "A major clash appears to be in prospect when official discussions on Brexit get under way between the UK and the EU [in] four weeks," Mr O'Leary said. "For the second consecutive weekend, Brexit Secretary David Davis was on the newswires highlighting the very different perspective that the UK has on how the impending negotiations should proceed. While one has to take some rhetoric coming from the UK with a pinch of salt given that we are bang in the middle of an election campaign, coming from a character like David Davis, there is probably some truth in it too."
European Commission Brexit negotiator Michel Barnier said he expects talks to start on June 19 and to report to EU leaders on the talks during a summit on June 22-23.
Garret Grogan of Bank of Ireland's global markets team said UK political risk was starting to build again.
"Meanwhile, the euro continues to make broad gains on the more favourable political and economic backdrop. Chancellor Merkel didn't do Irish exporters any favours by saying the Euro is 'too weak', albeit in a discussion on trade surplus to students in Berlin. However, it adds further momentum to the euro bulls," he said.