14/12/2020

UK and EU leaders agree to continue Brexit talks


GBP

Traders were relieved that a no-deal was avoided, all be it temporarily on Sunday as the UK and European Union agreed to continue negotiations beyond the latest deadline. The jump was felt most within the pound, which clearly demonstrates investor relief and hope that a post-Brexit trade deal can be reached.

Until last week, market expectations were solid around a deal being reached, but that optimism was breached as we got closer to Sunday and still without compromise in the three key areas; fisheries, competition and dispute resolution. Latest positioning data for the end of last week showed that hedge funds had flipped to a net long position on the pound due to expectations that a deal could be reached.

Despite the relief and renewed optimism, both sides remain cautious as there has been little progress on the key issues. It seems that the decision to extend is borne out of the progress already made, rather than any new progress over the weekend. Both sides have been releasing statements that echo this sentiment, yet the hope remains that a deal can be struck before it’s too late.

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