GBP Rollercoaster Returns as Brexit Drags on
It's been another choppy, headline driven day for GBP.
Initially, pound sterling was under pressure, seeing downside at this morning’s EU equity cash open amid the EU seemingly adopting a tougher stance on Brexit. No deal is better than a bad deal has been the message from the EU in recent days, and this morning reports surfaced that the EU are set to say at the EU Leader’s Summit tomorrow that Brexit talks have so far underdelivered and, thus, the EU will now begin intensified preparations for a no deal scenario.
Given that UK PM Johnson had previously threatened to pull the plug on negotiations if a deal was not in sight by the 15th of October (tomorrow), markets began to fear that, given the obvious large gap that still remained between the two sides, maybe Johnson would take the UK out of talks.
Compounding the bearish GBP feeling was overnight reports that the UK government has begun to consider the possibility of doing a “circuit-breaker” lockdown; a strict national lockdown for 2 weeks to bring down the transmission rate of the virus going into winter, something that opposition Leader Kier Starmer has been calling for strongly.
Thus, GBPUSD slumped beneath 1.2900 and even briefly below the 21dma at 1.2893.
However, at just after 1000BST/0500EDT, Bloomberg reported that, according to UK sources, the UK government had indicated that it was not planning on walking away from talks with the EU immediately. GBPUSD spiked higher on the news, and is not back above 1.3000 and back to within striking distance of the 1.3050.
Subsequent reports and commentary from the EU and UK officials stressed that, though talks will continued at an intensified pace, large gaps still remain between the two sides on the issues of fisheries and state aid.
RTE reported that talks will no continue for the next two weeks, while a Times reported tweeted that the new deadline to get a deal done was now the end of the month.
It looks like, as with so many other times in the past, we have returned to rolling deadlines; I would not be surprised if each new “deadline” to get a deal continues to be pushed all the way back to the end of the year, where there is the only deadline that matters; the legally binding end to the transition period at midnight on the 31st of December 2020.
Both sides would be wise to agree on a deal sooner, however, given that both sides will have to ratify the deal into law via their own Democratic processes, something that might be fraught with issues; the UK government, with its majority of 64 in the House of Commons, ought to be able to get any deal into law very quickly, while the European parliament, with its many different nationalities and factions might find things a little more difficult, as we are seeing right now with the EU recovery fund, which was agreed back in July, but is yet to be passed into EU law!
If a deal stalls in the EU parliament, we might be in for an accidental no deal, or at least the two sides trading on no deal terms for a few weeks.
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