It’s been another choppy day for GBP.
Initially, GBPUSD was boosted by a weaker USD as a result of a marginal recovery being seen across global equities as traders square positions ahead of the weekend, with the cross climbing to highs around the 1.2960 mark just ahead of midday.
However, the cross tumbled just before midday London time on the news that UK PM Johnson would later announce that he had concluded the UK should prepare for an Australian style deal, according to sources.
The headline triggered an immediate 100 pip drop in GBPUSD to just above the previous low of the week around 1.2860.
However, the cross quickly recovered from lows and to back above the 1.2900 mark as a plethora of EU Leaders (speaking as they left the final day of the EU Council Summit) talked about how they were planning for talks to continue next week – indeed, EU Brexit Negotiator Barnier is still reportedly planning a trip to London next week.
What next for Brexit negotiations and GBP?
GBP didn’t react too much at the time to this news, but a UK PM Johnson spokeperson came out with some very concerning comments that the UK considered talks with the EU to have ended, given that the EU had signalled that they would not compromise any further at the EU Council Summit this week.
Moreover, the UK essentially told the EU not to bother sending its negotiating team to London next week unless they were willing to properly engage in talks.
Overnight reports suggested that UK PM Johnson might seek to engineer a “political crisis” in order to get some further compromise out of the EU. This process appears to have started – weekend Brexit news could be explosive!
Although GBP seems fairly complacent about this news at the moment with GBPUSD above 1.2900, it appears as though brinkmanship between the two sides is growing.
French President Macron was out with some VERY unhelpful comments about how the UK needs the EU more than the EU needs the UK and how he will never “sell-out” French fishermen.
With talks now looking to have completely stalled, I see downside risks for GBP going forward, with markets likely to need to price in a growing probability of a no deal exit.
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