A solid day all round for GBP, with the currency topping the G10 performance table.
Traders have seemingly revised higher their expectations that the EU and UK will be able to forge a deal on the future relationship given the latest news updates;
EU Chief Brexit Negotiator Barnier was reported to have resisted UK Chief Brexit Negotiator Frost's requests for the two sides to enter into the negotiating "tunnel", which the UK had been pushing for with a view of striking a deal before the European Council on October 14-15th (and UK PM Johnson’s self-imposed deadline to get a deal by the 15th).
On the face of it this story might not sound positive; but talk of going into the tunnel (i.e. where an army of EU and UK lawyers hash out the actual text of the trade agreement) would only come if there is substantial momentum towards an actual deal – pretty much, after last week’s positive momentum, it appears as though, though the road might still be bumpy, we might actually now be seeing progress towards a deal. That is how GBP seeming to be seeing things anyway, with the currency rallying above 1.2900 at one point from overnight levels around 1.2700.
However, its probably wise not to get super optimistic just yet; EU's Sefcovic said that the UK's position is far apart from what the EU can accept and that the protocol on Northern Ireland must be implemented faster. This sentiment was echoed by UK PM Johnson, who said there remains much to be done on EU negotiations/trade deal and there are significant gaps but a deal is still possible.
Elsewhere, EU diplomats said there was no progress with the UK on the Internal Market Bill dispute at today's meeting, but trade talks continue.
So we are still some way off (there is not yet agreement on fisheries, state aid or level playing field), but there is no denying that momentum appears to have built, even if that does amount to more of just a will to get something done on both sides, rather than actual progress.
The internal markets bill no longer appears to be a threat to negotiations, with the EU having bluntly said today that they will never walk away from talks. Thus attention on the passage of the legislation will probably wane, although there is the possibility that the UK government could drop the legislation as part of some compromise with the EU (having used it as leverage), which would be taken as a GBP positive – that is worth watching over the coming month.
We now have just over two weeks until the EU Council Summit and Johnson’s self-imposed deadline to get a deal done; news flow will likely hot up over the coming days/weeks, if markets do get wind of a deal being reached, GBP will likely shoot higher and 1.3000 would almost certainly be there for the taking.
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