The pound sterling plunged due to talk that the UK would trigger article 16 of the Northern Ireland Protocol which increases the risk of a UK-EU trade war.
The pound sterling fell drastically in New York trading yesterday due to a dispute related to the Northern Ireland Protocol which increases the risk of a UK-EU trade war.
His position continued to be on the defensive at the start of the European session today (11/November), after the release of UK GDP data that missed expectations.
At the time of writing, GBP/USD slumped in the 1.3390s range and hit a record low since December 2020.
Ireland's Tanaiste, Leo Varadkar, said yesterday that his party was preparing for a situation where the UK triggered article 16 of the Northern Ireland Protocol.
The statement sparked market concerns regarding the remnants of the Brexit problem that has not been resolved to date.
"I don't think anyone wants to see the EU suspend trade and cooperation agreements with the UK," Varadkar told RTÉ, "If the UK acts in such a way that they withdraw from the protocol, withdraw from the (EUR-UK Withdrawal Agreement), I I think the EU has no choice but to put in place what we call rebalancing measures in response."
The triggering of article 16 until now has only reached the level of politicians' rhetoric in the British camp.
However, Varadkar's statement raised market vigilance.
"In the meantime, we also expect GBP to trade in a more defensive tone, on expectations that the UK government will trigger Article 16 of the Northern Ireland Protocol sometime in the second half of November," said Stephen Gallo, Head of European FX Strategy at BMO Capital. Markets.
The chaos of the Northern Ireland Protocol has not subsided, the release of UK GDP data this afternoon further weighed on the pound sterling.
The preliminary report shows that UK GDP growth only increased by 1.3 percent (Quarter-over-Quarter) in the third quarter of 2021.
The growth was slower than the 1.5 percent gain expected by market consensus and the Bank of England.
The most worrying thing is business investment which only grew 0.4 percent, due to various factors such as transportation constraints, remnants of the Brexit problem, and the risk of the UK-EU dispute.
What is the Northern Ireland Protocol?
During the Brexit negotiations, all parties agreed to maintain the 1998 Northern Ireland peace agreement (Belfast Agreement/Good Friday) which allowed the flow of goods between Ireland (an independent country) and Northern Ireland (part of the UK) without inspection.
However, given that post-Brexit Britain will no longer follow EU regulations, some modifications are needed.
The modification, known as the Northern Ireland Protocol, requires England to carry out inspections of goods coming from England, Scotland or Wales to Northern Ireland.
Inspections are carried out in Northern Ireland, including filling out customs documents.
Post-Brexit Britain continues to delay the implementation of the Northern Ireland Protocol on the pretext that the European Union applies customs checks that are too strict.
This issue had sparked a "sausage war" in the middle of this year, but subsided as negotiations between the two sides continued.
Brexit Minister David Frost has recently submitted proposals to change the protocol, including removing customs checks for the movement of goods between Northern Ireland and the rest of the UK.
He also proposed a new system under which goods can circulate freely in Northern Ireland as long as they comply with UK or European Union regulations.
However, the European Union did not like the proposal.
Article 16 of the Northern Ireland Protocol allows either party (UK or the European Union) to suspend part or all of the Northern Ireland Protocol.
But if the UK triggers article 16, the EU could retaliate by imposing import/export duties on trade between the two sides.
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