Choppy Trading in the Pound as PM Johnson Heads to Brussels
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- GDP uncertainty ahead of Brussels meeting
- Slim chances for a Brexit deal
- Crucial negotiations before the end of the transition period
GDP uncertainty ahead of Brussels meeting
The Great British pound has been trading in a choppy way this week as Brexit developments have the power to affect the currency’s dynamics in every moment of trading. GBP/USD picked up the momentum on Tuesday and has continued to gain as traders and investors have taken up a risk-on approach to the Brexit negotiation process.
On Wednesday, the Cable was close to reaching its Monday high of 1.3406 as the pair went as high as 1.3397 in the hours before the opening of the European session. Broad US dollar weakness was also responsible for today’s climb in the GBP/USD as the greenback has given up some of the gains made throughout the week.
Slim chances for a Brexit deal
Sterling traders appear to be optimistic about recent Brexit updates, the latest of it being the visit of Prime Minister Boris Johnson to Brussels where he is to meet European Commission President Ursula von der Leyen. The two have been trying to figure out a way to strike a deal while talking over the phone earlier this week. The efforts proved to be futile and now the leaders will try to do the same in person on Wednesday. According to both, main divergences still remain as hurdles towards an agreement, and time is running out. Additionally, chief EU negotiator Michel Barnier commented earlier that due to the remaining differences on the key issues, the chance of a deal is “very slim”.
Crucial negotiations ahead
The make-or-break moment for the Brexit negotiations could be as soon as Wednesday evening when the UK Prime Minister meets with the EC President Ursula von der Leyen. The visit comes after the UK dropped controversial clauses of its Internal Market Bill as an attempt to boost the relations with the EU. The two sides agreed on Tuesday to a separate deal on the implementation of the Northern Ireland protocol. The “agreement in principle” covers the implementation of certain Northern Ireland aspects of Brexit and involves borders and trade. The removal of the controversial clauses lightened the mood in the negotiations but the three sticking points, fair competition, dispute-settlement arrangement, and EU fishing rights, are still seen as dealbreakers.
If the sides do not agree to a deal, the UK will leave the EU on Jan 1, 2021, and will face tariffs on exports to the bloc as well as many other economic and financial disruptions. PM Boris Johnson has been clear that the UK wants to have a deal in time for the end of the Brexit transition period. He also commented that the current situation is “very tricky”. A possible scenario now is that if Boris Johnson doesn’t get anything out of the trip, he could walk away without a deal and that will have seriously damaging consequences for both sides.
The meeting between the UK Prime Minister and the European Commission president would allow them to hold crucial negotiations right before the European Council meeting on Thursday. The leaders of the 27 EU members will be briefed then by Ms von der Leyen on the Brexit progress and if an outcome is possible.