The research team at Deutsche Bank notes that Sterling saw steep intraday moves yesterday, as investors were encouraged by reports that the EU will offer Prime Minister May a UK-wide customs union arrangement in an effort to resolve their outstanding issues.

Key Quotes

“Our economists do not think that such an arrangement will be easy to get through parliament. If it covers the entire UK and is open-ended, the hard Brexiteer flank of the Conservative party will not be satisfied; if it is temporary and separates the UK and Northern Ireland in some way, the DUP will not be satisfied; and the EU is unlikely to support a deal that resolves these differences.”

“Later in the evening, a cabinet meeting at Downing Street reportedly (per Bloomberg) erupted in intra-party conflict as PM May tried to navigate all these differences.”

“Separately, The Times political editor tweeted late yesterday that the Brexit transition will last for years under PM May’s latest plan where Plan A is to involve Northern Ireland in a separate VAT area. The Times further reported that the Brexit transition period will be on a "rolling" basis with an annual "decision point" where any transition extension is reviewed.”