EU launches legal action against UK over Brexit grace period
The European Union has taken legal action against Britain, accusing the UK of undermining trust by breaching Northern Ireland (NI) protocol and unilaterally extending the Brexit grace period. Formal notice of the infringement proceedings was issued alongside an accompanying letter addressed to newly-appointed Brexit minister, Lord David Frost from EU Commission Vice President, Maroš Šefčovič. Today’s action marks the second time that the EU has taken legal steps against the UK over Brexit. Last year the bloc alleged that UK Prime Minister Boris Johnson had breached international law by creating the Internal Market Bill, which would have overridden NI protocol. If London and Brussels fail to resolve the latest issue on a political level, not only will the UK be sanctioned and financially penalised, but the case could go before the European Court of Justice (ECJ), which retains jurisdiction over the protocol. Brexit-hating Labour Party politician and journalist, Andrew Adonis who served under Tony Blair and Gordon Brown, has capitalised on the chaos erupting from the latest developments, tweeting that “Brexit will never be over until it is reversed.” His criticism comes days after he accused pro-leavers of “wrecking the British economy” due to data showing that goods exported to the EU slumped by 47% following the Brexit transition period. Lord Frost dismissed his claim that Brexit was solely to blame and said the coronavirus pandemic has reduced demand for goods. He also noted that the Office for National Statistics (ONS) said there was evidence of stockpiling before January 1st 2021. Meanwhile, a Downing Street spokesperson insisted that the UK plan for the Brexit grace period extension is a temporary measure to “minimise trade disruption in Northern Ireland”. However, EU officials have demanded the UK stop acting unilaterally and comply with the Brexit Withdrawal Agreement, which both sides have signed. European Commission VP, Maroš Šefčovič has said the latest action from the UK not only “defeats the purpose of the Brexit treaty but undermines trust between us.” In his letter to the UK government, it alleges that Britain has breached good faith provisions concerning the movement of goods by delaying implementing the Northern Ireland protocol. Article 12, clause 4 of the Northern Ireland protocol, Article 257 on the Functioning of the European Union and Article 5 of the Brexit treaty have all been invoked by the bloc. The EU has urged the UK to refrain from going ahead with the extension to the grace period and has given London one month to respond to the formal notice. Suppose Britain fails to respond by the deadline. The EU could launch a dispute settlement mechanism through the ECJ, resulting in a hefty financial penalty and suspension of the Brexit treaty. EU sources have said that they hope the legal route will be unnecessary and that London and Brussels can resolve Northern Ireland protocol issues through further political negotiation. However, the representative stressed the importance of “mutual trust” and said implementing protocol will be impossible if the UK continues to take unilateral action. According to the Guardian, one spokesperson said that the EU previously asked Lord Frost to produce a roadmap detailing how the UK plans to implement NI protocol in exchange for an extension on the Brexit grace period. The roadmap was expected to provide the bloc with an extensive plan on NI protocol, covering the milestones and behind-the-scenes work concerned with ensuring seamless trade, but London failed to make good on the agreement. Yet, despite EU officials calling out the UK’s plans for being a serious “violation of international law”, the news has had no immediate impact on the British pound (GBP). While GBP is shedding ground heading into the North American session, it seems that comments from Bank of England (BoE) Governor Andrew Bailey on the UK’s economic outlook have limited downside against the euro (EUR) and other major currencies. Pound Sterling (GBP) advanced against the US dollar (USD), euro (EUR), and other trading rivals earlier during the session after BoE Governor Andrew Bailey expressed confidence over the UK’s economic recovery outlook. However, GBP crosses have come under bearish pressure as we enter New York trading hours due to a combination of Brexit havoc and renewed demand for the US dollar (USD). Foreign Exchange (FX) strategists from Nordea Bank have told their clients to buy US dollar (USD) vs pound Sterling (GBP), with rising US yields and expectations for the US to exit the pandemic ahead of peers, supporting the greenback’s outlook. At the time of writing, the British pound to US dollar (GBP/USD) exchange rate has slumped by 0.2% to USD 1.3889. Furthermore, as the US is vaccinating faster than other leading economies, further volatility in the currency pair is likely. Nordea, which is ranking global currencies based on their relative economy’s recovery prospects, places the greenback first, pound Sterling (GBP) in second and the euro (EUR) further down the list, citing the EU’s laggard vaccine rollout as a reason for pessimism. However, this brightens the outlook for the British pound to euro (GBP/EUR) pair, which is forecast to outperform this year. Although GBP/EUR is trading slightly lower as of 17:00 GMT at EUR 1.1638, the currency pair remains near multi-month highs, and rising COVID cases across the Eurozone will likely limit any upside potential in the single currency over the near-term. Pound Sterling (GBP) could also gain traction against the US dollar (USD) in the week ahead, following the Federal Reserve (Fed) and the Bank of England’s (BoE) policy decision, as this could put a floor under the UK currency if the forward guidance supports risk. GBP traders will be keen to see if policymakers support UK Prime Minister Boris Johnson’s lockdown exit roadmap. Suppose the BoE believes that the UK’s plans to reopen the economy will allow for a robust economic rebound. The British pound (GBP) could gain against a host of major currencies, including the riskier Australian dollar (AUD). Pound Sterling (GBP) started the first day of the new trading week up against the Australian dollar (AUD) but has slipped following confirmation that the EU has launched formal legal proceedings against the UK. After rallying to AUD 1.8014, the British pound to Australian dollar (GBP/AUD) exchange rate is now trading flat at AUD 1.7941. However, US dollar (USD) strength and rising Treasury yields have left the “Aussie” exposed to downside pressure on Monday. Even positive data out of China has had little impact on AUD exchange rates, which tend to outperform when China records economic growth. AUD traders will be eyeing Tuesday’s publication of the minutes from the Reserve Bank of Australia (RBA), which could weaken AUD further if the central bank reinforces its dovish stance. Meanwhile, GBP/AUD could find bullish momentum ahead of the weekend if BoE policymakers express their optimism over the UK’s economic outlook at Thursday’s policy meeting.
Pro-Remainer Andrew Adonis seizes on Brexit havoc
GBP/USD comes under sustained selling pressure
GBP/AUD retreats from AUD 1.80 level
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