GBP slipped by nearly 40 pips on comments earlier today from EU Brexit Negotiator Michel Barnier. Speaking upon the conclusion of the first round of UK/EU trade negotiations, Barnier highlighted the difficult road that lies ahead.
He noted that there remain many “serious” divergences between the EU and UK on the future relationship, including on the issue of creating a level playing field. As a reminder, this is a key EU demand (it essentially would lock the UK to certain EU standards in some areas, to prevent the UK from trying to undercut EU regulations to gain a competitive advantage).
Moreover, Barnier reiterated that the EU want fisheries to be included in the deal, another known sticking point.
Another area of disagreement was on the prospect for8 the deal being split into a series of mini-deals, or one overarching deal. The UK reportedly wants the former while the EU is arguing for the latter.
Although Barnier did say that a good agreement was possible, his characterisation of reaching a good deal as “difficult” appears to have spooked some GBP traders.
However, one prominent market commentator made an interesting point; with Covid-19 expected to deliver a sizeable hit to both the Eurozone and UK economies, the incentives to soften their respective stances a little and be more compromising is higher, given that a no deal end to the transition period would be highly damaging for both the UK and EU.
The framing of the prospect of a deal as “difficult” resulted in some minor downside for GBP at the time, although GBP is still way firmer on the day, mainly due to USD weakness.
EU Trade Chief Hogan was a little more pessimistic; it is difficult to take comfort from the recent UK rhetoric regarding trade talks with the EU, he said, although he did not appear to be referring to the recent talks, rather, “rhetoric” more generally.
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