The coronavirus pandemic stole the attention from one of the most important geopolitical events in decades – the Brexit divorce. The United Kingdom and the European Union still have plenty of things to agree upon, with December 2020 a deadline that comes closer by the day.
By the way the British Pound has been moving, the level of uncertainty in the market is clear. For example, 1.30 in the GBPUSD, 1.20 in the GBPCHF, or 0.9 in the EURGBP are round numbers the GBP hovers around for quite some time now.
Yesterday, the UK Chief Brexit negotiator took the markets by surprise. He hinted that the ongoing talks are going well, and a deal can be reached as soon as September. Suddenly, the GBP traded with a bid tone – a tone that faded away soon after. How come?
E.U. – U.K. Deal Based on the E.U.-Canada Deal Framework
The idea floated around yesterday is that the new E.U. – U.K. deal should be based on the E.U.-Canada Free Trade Agreement (FTA) deal in place. The expressed optimism for a possible deal was also shared by Prime Minister Boris Johnson. He touched the subject during a recent visit in Ireland and the U.K. guarantees that nothing will threaten the integrity of the E.U. ‘s single market.
As always, when there is a will, there is a way. Markets will likely monitor the developments closely, but in the end, this is just a negotiation that will likely find a common point.
Both sides are interested in reaching a deal. The United Kingdom’s main trading partner remains Europe. And Europe without the United Kingdom is incomplete. One cannot separate the two, for the simple reason that they (now) share a common border.
Time will tell if the Brexit decision was the right one or not. At this point, it doesn’t matter anymore – the subject was debated for so long that people lost interest in it. Just get it over and move on!
As for why the negotiations take so long, one should imagine the legal complexity of such a divorce. Discussions about laws, courts, fishing waters – and in the end, influence, and money, are difficult to put on paper.
Once agreed, is the moment we will finally see the true reaction in the British Pound.