Today marks the start of the trade negotiations between the United Kingdom and the European Union. Even though the actual negotiations restart date is set for June 29th, the expectations are that some discussions will be initiated during the June 18th – 19th EU Summit.
A Timeline for Traders to Consider
July 1st is the first date traders should mark in their calendars. This is the date that the UK has formally ruled out an extension. EU lawyers themselves have stated that an extension of the transition beyond this date is impossible. It means that some kind of progress, like sub deals on financial services and fishing rights, is expected by this date.
The 5th negotiations round will take place about a month from now, and then again, almost one month later, the new soft deadline comes at the end of the 6th round to take place between 17th and 21st of August.
Beyond these dates, there are two more EU Summits to consider – the middle of October and December, before the all-important 31st of December deadline. These are crucial times to consider as there is a considerable risk of a no-deal Brexit if no extension or permanent Free Trade Area is agreed upon.
Because transition cannot be extended beyond December 2022, a new relationship must come into force at the end of this year. Regardless of its form, it must be ratified by the UK and the EU institutions, and it may be the case that national parliaments will have to vote on the issue as well.
The indecision is reflected on the GBP pairs too. Impacted by the COVID-19 pandemic, the UK economy suffered as all others have around the world.
Ahead of today’s decision by the Bank of England on monetary policy, the market expects more stimulus in the form of further asset purchases, but there is also a hint of the rates moving into negative territory.
The health crisis, together with the Bank of England’s unconventional monetary policies, are expected to be temporary. Once we learn to contain the spread of the virus, central banks and governments will gradually retrace stimulus.
Because of that, what happens with the Brexit negotiations is far more important in the long run, than the current health crisis. The pandemic is an exogenous shock, but Brexit is not. One is expected to fade away in time. The other one is permanent.
Therefore, any medium to long-term positioning on the GBP should consider the UK-EU trade negotiations timeline. The clock starts ticking this week.