15/10/2020

UK softens stance on Brexit talks


GBP

Sterling rebounded close to 1% from one week lows on Wednesday following reports the UK government would soften its stance and continue Brexit trade talks beyond Prime Minister Boris Johnson’s 15th October deadline.

The reported softer stance has increased investor expectation that a trade deal can be agreed this year and resulted in sterling pushing towards its best levels since early September against both the euro and dollar.

The pound had started the week lower on growing fears that Johnson would walk away from talks as EU officials admitted huge differences remained between both sides. However, yesterday’s reports suggest the UK government are willing to give talks more time. In particular, sources claim that UK’s Chief Negotiator Frost will be advising the Prime Minister to stick with talks as he sees a deal with the EU as possible within the next few weeks, with tentative signs of compromise on fisheries.

The pound continues to be headline sensitive and this will likely continue until the end of the week with EU leaders meeting today to kick off their two day summit. We will also likely see Johnson give an official update on the status of talks tomorrow and whether or not the UK will officially continue to negotiate for a deal. Although there is a feeling in the market that a Brexit deal is close, the threat of negative rates, further lockdown measures and increased coronavirus infections may keep a lid on the upside of a trade deal announcement.


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