The British pound’s (GBP) erratic behavior continues. As we get closer to the end of the transition period, any rumor regarding a deal or no-deal outcome from the ongoing negotiations generates a reaction on the GBP pairs.
Yesterday was no different. The pound was aggressively sold at the start of the London session on news that the EU negotiator, Michel Barnier, sees a no-deal as possible. The news immediately sent the GBPUSD lower one big figure (i.e., one hundred pips) and the EURGBP higher an equal amount.
Yet, the parties still discuss. Late last night, the financial media made the case that the negotiations took well into the night, judging by the number of the pizzas ordered late in the evening. In other words, the work is ongoing, and one thing we know already – the GBP still has some late moves into the 2020 end.
Sticking Points on the Brexit Negotiations
Sticking points remain, and the two parties run out of time. Both politicians and the population have lost patience, and many in the UK do not even understand what Brexit stands for anymore.
Yesterday’s Barnier warning was that differences still persist on main issues, like governance and fisheries. On fisheries, the two parties seem to be a world apart – we talk about 700,000 tons of fish worth about half a billion pounds a year fished by EU27. It appears that the EU proposal of restoring 18% to the UK is unacceptable, as the UK demands 80%. To find common ground on such a difference is a daring task for the month ahead. As such, when Barnier said yesterday that there might not be a Brexit deal, after all, the GBP moved lower.
What is interesting here is the EUR reaction. On the news, EUR pairs reacted negatively too, albeit the lows have been bought fast. The flows into the EURGBP cross are strong enough to influence the other important EUR pairs, like the EURUSD and EURJPY.
The focus shifts now on the UK Finance Bill. It is expected next week, and the EU is interested to see if it breaks international law. If there is any hint that the bill breaks the Northern Ireland protocol, Brexit is on the brink again. More importantly, it means a break of trust – the most valuable asset during any negotiation process.