UK Pound stabilises as Leave comments point to backtracking – MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the UK PM Cameron heads off on perhaps a slightly awkward trip to Brussels today for an EU Leaders’ summit where the first formal gathering since the UK referendum vote to leave the EU last week.

Key Quotes

“On the third morning since the vote to leave, the pound is actually higher versus the US dollar for the first time. Bloomberg is reporting this is on hope that substantial policy support is on its way to help sentiment.

Perhaps, but there is also some speculation in the media here in the UK that the victorious Leave side are looking to backtrack on its policy of full control of UK borders. There have been questions asked about whether there is a difference between free movement of people and free movement of labour. The focus appears to be more on stopping people coming to the UK without a job rather than simply stopping people coming to the UK.

The uncertainty over the stance on immigration was sparked after leading Brexit campaigner Daniel Hannan MEP, stated that the Leave campaign never promised to reduce immigration, only to control it. Nigel Farage yesterday stated in a TV interview that he was very nervous over some of the comments he has heard since the referendum victory that suggested some back-tracking by certain politician who campaigned for Leave.

Ian Duncan-Smith has now come out and stated that free movement was a “red line” in negotiations with the EU but if this debate does persist it will undoubtedly raise optimism in the markets that the trade deal may prove more along say the Norway model with banks maintaining EU passporting rights and the UK maintaining access to the Single Market.

While these signs of backtracking and some favourable comments on the stance on immigration might prove significant, we would be very surprised indeed if these financial market hopes of a much more favourable deal with the EU were to last. The near-term adjustment for the pound is unlikely complete after just two days of declines, albeit very big declines.”