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Pound Sterling: Northern Ireland Flashpoint Removed after Grace Period is Extended

EU UK negotiations

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The UK has confirmed it won't be placing any checks on goods entering Northern Ireland from the rest of the country, a move that currency analysts say removes a potential future flashpoint for the British Pound.

Checks on goods were expected to be introduced at the end of September, but a failure by the UK and EU to agree a system that doesn't upset the fragile social and political dynamics unique to Northern Ireland has thus far failed to materialise.

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING Bank, said in a research note ahead of the news that Northern Ireland was a lingering source of uncertainty for the Pound.

He said that unless satisfactory progress had been made on the issue the Pound would struggle in October as the current grace period was due to expire at the end of September.

But on Monday evening David Frost, UK lead negotiator, told Parliament in a written submission that a fresh extension would be put in place with no new deadline set for the completion of talks.

Crucially, the EU appear to have all but agreed.

Two senior EU officials with knowledge of the discussions told the FT the extension would not provoke a strong reaction in Brussels.

"The idea is that the UK will continue to apply the same conditions and we will assume that this continues to allow for the discussions to conclude," said one official.

"In the near-term, the GBP news is more positive - the UK has extended the Northern Ireland grace periods for the third time," says Elsa Lignos, Global Head of FX Strategy at RBC Capital Markets.

"The move allows negotiations to continue for a few more months," says Lignos.

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There was no immediate impact on Pound exchange rates, but when looking at coming weeks and months a potential downside risk has been removed.

"It removes an imminent flashpoint for GBP as the grace period was due to expire at the end of the month," says Lignos.

A government source told the Guardian the UK wanted to "create space for talks to happen without deadlines looming".

The Northern Ireland protocol is designed to ensure there are no barriers to trade between Ireland and Northern Ireland, but in order to achieve this outcome checks would be required on goods moving within the UK from Britain to Northern Ireland.

The requirements include export health certificates for meat products, which has lead to accusations the protocol effectively hampers the provision of food to Northern Ireland.

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