Sterling higher on Brexit deal hopes


Sterling opened higher on Friday buoyed by investor optimism that the U.K. and EU will solve their differences to achieve a Brexit trade deal before the end of the year.

Comments from German Chancellor Angela Merkel reflected the optimism in the market on Friday. Whilst admitting that a breakthrough hasn’t been reached, Merkel admitted that a deal is a very real possibility. Sterling was also aided by news that U.K. Prime Minister Boris Johnson would intervene in Brexit talks for the first time since June and would hold a telephone call over the weekend with the President of the European Commission Ursula von der Leyen to help move talks onto the next stage.

Following their conversation on Saturday, Johnson and Von der Leyen emphasised the importance of securing a trade deal and approved a further month of Brexit negotiations whilst vowing to remain in close contact throughout the remaining discussions . In the joint statement issued by the pair following the call, Johnson and Von der Leyen stated that they had reasons for hope on overcoming the most contentious issues whilst instructing their chief negotiators to intensify discussions to close the remaining significant gaps. As a result, EU chief negotiator Michel Barnier is expected to travel to the U.K. this week to resume negotiations with U.K. negotiator David Frost who is then expected to travel to Brussels the following week.

Both Barnier and Frost gave brief updates on Friday. Whilst reportedly making some relatively minor progress on State aid, both sides have been unable to bridge the gap on fisheries. This was acknowledged by David Frost on Friday, who labelled the fisheries gap as huge adding that a further concession from the EU in this area would be needed otherwise a deal will not be possible. Barnier addressed members of the European Parliament stating that he believes that October will be the crunch period for trade talks, adding that he is hopeful a deal can be ratified in November.

Outside of Brexit, there was some cause for concern amongst investors and the UK’s economic recovery as Britain’s events industry warned of 90,000 COVID job losses. The Events Industry Alliance called for further measures and blamed the job retention scheme of falling short as Sunak’s new plan to protect “viable jobs” doesn’t go far enough to protect the events industry.

Economic Calendar

10:00 – EUR – Retail Sales expected to improve to 2.2% from 0.4% previous
13:00 – USD – ISM Services PMI expected to fall to 56.6 from 56.9

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