Brexit Talks Gain New Life on Sunday, Pound Lifted to 1.3400

14 Dec 2020 · 3rd Party Analysis

Brexit Talks Gain New Life


In Summary

      1 . Brexit deadline extended slightly

      2 . Competition issues still remain contentious

Brexit talks were looking grim last week. There was little progress on the main issues like fishing waters and the level-playing field. Prime Minister Boris Johnson went to Brussels in an attempt to strike a deal with European Commission President Ursula von der Leyen. However, the meeting was a miss as it failed to bring any movement forward.

An Extended Deadline

Going into the weekend, the two sides agreed to extend the deadline until Sunday. As there is hope that a deal can still be reached. Carrying the pressure from the week to the weekend and over to Monday, it doesn’t seem like there are any developments from the previous week.

Nevertheless, some pressure has been lifted as some improvements have been noticed. As a result, the Great British Pound was lifted at the opening of the Monday session. The appreciation of the sterling began on Friday evening as traders were optimistic going long into the weekend. The GBPUSD pair briefly dipped to 1.3135 on Friday. And the pair has climbed to a high of 1.3408 in the early hours of the European trading session today.

A Dinner Brings the Potential for Progress

Going back to the dinner between Boris Johnson and Ursula von der Leyen, the two sides extended the deadline to Sunday. As both parties hope to have conclusions on the talks and to decide whether the process is worth continuing or not. It seems that sufficient progress has been made. Both the UK and the EU negotiators have been working around the clock, and reportedly, talking until the early hours. Only now we are starting to see the potential for progress.

Agreement Between the Two Sides Remain Far Away

Currently, no details have been disclosed following the announcement on Sunday that both sides are willing to go the extra mile. Meanwhile, negotiators agreed to continue the talks. The UK and the EU remain far apart. As Boris Johnson stated that there were still significant gaps to try and bridge. Not knowing when the new deadline is, the market continues to bet on a Brexit deal as a result of an anticipated breakthrough in the sticking points.

Between Compromise and Competition

The most difficult issue to resolve is the level-playing field or fair competition after the UK leaves the bloc’s single market. The efforts are now focused on trying to reach a compromise around the mechanism for establishing fair competition. One of the suggestions is there will be an independent process for arbitration. The mechanism will have to serve the purpose to protect the UK and help preserve its sovereignty so it wouldn’t have to follow suit. For example, in a situation where the EU improved its standards on environmental regulations. In this scenario, and without an independent process for arbitration, if the UK didn’t follow suit, the EU would be able to retaliate with imposed tariffs in the future. That is what troubles Boris Johnson at present and this is the reason for not being to strike a deal on current terms. What we’re starting to see now is some kind of compromise around that mechanism.

A Multi-layered Deal

As the deadline to finalize a deal keeps getting pushed forward and there are still many layers this deal needs to go through even after an agreement. So, what is the actual deadline now? As the UK-EU deadlines are incredibly elastic, the one firm deadline is December 31. Realistically, the deal has to be ratified by the European Parliament and already the deadline has been missed for that, although the EU parliament has said it could sit on Dec 28 and ratify a deal, if necessary. The deal also needs to go through the UK parliament as it has confirmed it’s ready to vote on a deal until Christmas.

Keep an eye out for Brexit updates and trade forex to leverage GBP fluctuations.

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