As we highlighted on 17th July Sterling weakness continues to be the inevitable outcome of the spectacular incompetence with which the UK Government has approached the Brexit problem, and cable has now reached its lowest value for a year. Theresa May has (apparently) cut short her holiday to plead with French President Macron to accept the deal that was put to the UK Cabinet at the Chequers meeting. There are many that suspect this is just political theatre and that she will eventually get her plan ‘approved’ which she can then present as a ‘victory’ against the backdrop of negative publicity regarding the ‘No Deal’ option, most of which seems to bear the fingerprints of her own team of Europhiles on it to start with. It is a particularly old political trick to start fires and then act like a hero when you extinguish them, but it clearly still works on some people.
Since the Prime Minister took the extraordinary step of submitting the plan to Angela Merkel before letting her own administration in on it, there are many who take the cynical view that the whole proposal was authored by the EU in the first place, and its intent is two-fold. Firstly, the UK cannot be seen to benefit from Brexit, as this sets a bad example to the other members and runs contrary to the EU mantra that Everything is Great. Secondly, the EU seeks to punish the UK for its failure to vote in support of the Great European Superstate, reducing it to an economically powerless vassal state, again, pour encourager les autres. Against this background we remain Bearish for Sterling, and expect the Prime Minister’s difficulties to worsen considerably when Parliament returns from its Summer Break at the beginning of September.