Sterling Slides over 2% as Brexit Deal Remains Uncertain

21 Dec 2020 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Fishing rights continue to stall Brexit negotiations
  • A new virus threat on the horizon for the UK

The Great British pound slides over 2% as the UK and the EU failed to produce a Brexit deal over the weekend, essentially dragging the process to the last full week of December. The pound slipped against the dollar from Friday’s closing price of 1.3506 to the current market price below 1.3225, a drop of 2.15%. As the markets across Europe are trading in their initial hours, the pound continues to drop as the dollar is rising across the board.

Lack of progress in the Brexit negotiations over the weekend caused the UK currency to fall as market participants became increasingly worried that a deal may not happen. Currently, no resolution is in sight even though the parties continue to work towards reaching an agreement. The well-known issue of fishing rights continues to stall the negotiations. Officials on both sides are hopeful that UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen will be able to reach a compromise that will clear the way towards a deal before the end of December.

The markets were hoping that the unofficial Sunday deadline will be enough for the parties to strike a deal. Instead, there are few signs on Monday that either party is ready to compromise. Chief negotiators from the UK and the EU spent Saturday trying to bridge the gaps, while Sunday was devoted to reassessing the progress. Late on Sunday, UK officials came out with the announcement that talks were still challenging and “significant differences remain”.

New Fast-Spreading Coronavirus Strain Discovered

Meanwhile, the UK is facing a renewed coronavirus threat. The UK woke up to chaos as a mutated virus is spreading rapidly across the country, spurring a wave of travel restrictions. A new fast-spreading variant of the virus has been discovered on Saturday and France, Germany and Italy are all suspending flights from the UK. Airports are crowded and people are flocking to train stations in London, while the police are trying to accommodate the order.

According to British researchers, the new strain can spread 70% faster than other coronavirus variants. The British government has banned families from seeing each other over the festive period while warning that the new virus strain is “out of control”. More than 16 million Britons have been ordered to remain in their homes in London and Southeast England in light of the new restrictions. Health experts are advising against panic caused by the discovery saying that even though the virus is quicker to spread, it is not any more dangerous than other variants.

The dollar, which was heavily offered recently, strengthened its positions in the currency market after lawmakers in Washington were able to finally agree on a stimulus package to bolster the US economy. On Sunday, Congressional leaders approved the deal worth roughly $900bn, the second round of coronavirus aid, following the $2.2tn Cares Act in March.

Across Europe, markets are posting sharp losses in the hours following the Monday open. The French CAC40 is down by 2.85%, followed by the German DAX dropping 2.80%. UK’s FTSE100 is down by 2.00%.

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