Irish Deputy PM Resigns, this Could be Good for the Pound

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  • Pound-to-Euro exchange rate today: 1 GBP = 1.1179 EUR
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Pound Sterling's strong start to the week against the Euro and US Dollar could have been more impressive were it not for the looming threat of Irish politics scuppering progress in the Brexit negotiations.

Politics in Ireland are in focus; and the recent resignation of the Irish deputy-Prime Minisiter are supportive of the UK currency, we believe.

Irish Prime Minister Leo Varadkar has written to opposition Fianna Fáil leader Micheál Martin confirming that his deputy, Frances Fitzgerald, has offered her resignation and he has accepted it.

The confirmation comes ahead a Fianna Fáil motion of no confidence in Fitzgeralnd, which was due to be debated in the country's Dáil at 8pm. The motion was set to see Varadka's minority government fail, which would in turn trigger elections and usher in a period of uncertainty in a key European country just as Brexit negotiations reach a key stage.

All the Pound wants for Christmas is for talks to move on.

The political uncertainty comes just as the E.U. and U.K. look to close in on an agreement that would see Brexit negotiations move on to issues of trade and the future relationship - worries that Ireland would block the progress of talks over uncertainty concerning the inter-Ireland border were seen weighing on the Pound.

Now that Varadka's government can continue we believe Varadka will no longer be under pressure to play hard-ball with the U.K.

Why the Resignation Could be Good for the Pound

Just as the issue of the financial settlement appears to have been navigated, a new problem for Brexit negotiations arises. While the question of the Irish border has always been a key priority for negotiators, the Irish government's recent threat to veto the progression of talks over the issue is a fresh development.

The issue appears to have been placing a cap on the Pound.

The UK is Ireland's largest trading partner, yet Leo Varadkar appears willing to risk a disorderly Brexit that would threaten Irish economic growth if he feels the UK has not done enough to guarantee there will be no 'hard border' between Ireland and Northern Ireland.

The UK has stressed time and again that no hard border will be erected, instead suggesting electronic monitoring of goods can be achieved.

Yet, Varadkar appears displeased with offers made thus far; the ratcheting up of threats could have been because he was facing the prospect of an election at home thanks to the Fitzgerald crisis and he knows threatening Britain sits well with voters who hold traditional Irish republican sympathies.

Either way, the prospect of Brexit negotiations being stalled by Ireland is a real risk, the political uncertainty heightened that risk.

"Hiccups on the political front could however dampen things for the Pound. With the December 4th Brexit bill deadline approaching, the drama in Ireland takes on added significance as it relates to the Irish border," says Joel Kruger, an analyst with LMAX Exchange.

Marshall Gittler at ACLS Global says that if there were a vote of no confidence and the Irish government fell, then the Irish PM may attend the crucial December EU summit meeting as a lame duck PM facing an election.

"If he’s a lame duck PM, his bargaining position could be weakened and the others might  find it easier to pressure him into agreeing to give Britain a pass. On the other hand, it could make him dig in his heels in order to boost his popularity back home ahead of the election," says Gittler.

Gittler says he believes the second scenario would have been likely.

"There’s an old saying in the US that 'all politics is local politics.' I think it would make Ireland less likely to compromise. That would definitely be negative for GBP," says Gittler.

If this saga dies down owing to the resignation, Varadkar might feel he can join the rest of the E.U. and allow Brexit negotiations to proceed to the next step.

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