The Pound remains poised ahead of the EU Summit as EU leaders discuss the next steps in the Brexit talks.
It seems likely they’ll agree to continue the talks, as it’s unlikely they would want to be the side that left the table first, but possibly they might signal less enthusiasm on them (remember they’re still negotiating). Large disparities still remain between the two sides’ positions (in particular fisheries, fair competition and dispute resolution) and the closer you get to the negotiating camps, the less positive they sound about the progress being made.
Today marks Boris Johnson’s self-imposed deadline for getting a Brexit deal done and his chief Brexit negotiator (Frost) will speak to the PM today about whether to continue with the talks or start to prepare for a no deal. Boris has expressed his disappointment that further progress hasn’t been made in reaching a deal and said he would wait until after the EU Summit before announcing their next steps. It seems unlikely he’ll walk away from the negotiating table just yet, and we might expect another couple of weeks of talks, but we shall have to see.
As typical with these talks, there’s a good chance the talks will go down to the wire and a decision could be made towards the end of October or start of November. It’s unlikely to go on much longer than this, however, as things would need to be ratified in time before the end of the transition period om 31st December. Nothing is guaranteed at this stage but some banks, such as Goldman Sachs, think a thin trade deal is still likely to be reached towards the beginning of November. How much of an impact on the Pound this type of deal would make is hard to say but it would certainly avoid the cliff-edge of a fully-fledged no deal exit.
Sterling had made some ground back this week as optimism grew that a trade deal was still on the cards and after new UK covid restrictions weren’t as stern as they could have been. Still, case numbers are on the rise and the announcement of stricter measures in London today has taken some shine off the Pound.
As a result, the GBP/USD is down about half a per cent today but remains relatively buoyant for the month. The GBP/EUR has slipped a little today but still trades close to its 5-week highs. Traders will be looking out for political drama from the EU Summit and at Number 10, as well as the latest covid case numbers, so we could see some volatility over the next day or so.