Above: Belfast, Northern Ireland. Image © Adobe Images

For now tensions between the EU and UK continue to provide some background noise, but a key risk to the British Pound is a complete falling out between the two sides.

The trigger for such an outcome would be a failure to reach a new agreement on the Northern Ireland protocol - that element of the Brexit deal that covers Northern Ireland's unique position that straddles both the EU and UK.

Reports out midweek show the UK is seeking new legal advice to back possible change to the protocol.

According to the FT the UK government is seeking to appoint new external legal advisers in preparation for a possible overhaul of the protocol.

The move to find fresh legal advice will fuel expectations that ministers are preparing to use

the Article 16 safeguard mechanism to try to fundamentally rewrite the deal, which has soured EU-UK relations since it came into force last January.

This would be a negative outcome for the Pound were the EU to retaliate by raising trade frictions between the two sides.

The FT reports the government was seeking the new legal advisers to enable Suella Braverman, the UK attorney general, to provide legal opinions supporting the government’s plans.

Reference rates at publication:

GBP/EUR: 1.1768 \ GBP/USD: 1.3630High street bank rates (indicative): 1.1540 \ 1.3348Payment specialist rates (indicative: 1.1710 \ 1.3562Find out about specialist rates, hereOr, set up an exchange rate alert, hereThe report adds that the move had been instigated because of fears that existing external advisers would not be prepared to back the government’s plans to use Article 16 as a backdoor to rewriting the deal.

“They want to leave Braverman free to opine without there being any conflicting advice out there,” a source told the newspaper.

There is little evidence that political risk is weighing on the Pound, as was the case prior to the UK's exit from the EU.

In fact much of 2021's advance can be attributed to some completion of the exit which removes an overhang of uncertainty.

The risk is of course that this risk grows to the extent that it impacts investor behaviour and commands a fresh discount of the Pound.

However, the UK and EU follow a very predictable playbook: they take negotiations to the wire before ultimately agreeing a deal, and this time should be no different.