GBP : Brexit Fears

(Thu, 3 Sept 2020). Talks on the relationship between the EU and the UK after Brexit remain stalled and that could begin to weigh on GBP after its recent gains against EUR and USD. Michel Barnier has said he is worried and disappointed by the lack of progress in the negotiations and has said that end-October is a strict deadline.

GBP/USD OUTLOOK DETERIORATES

The outlook for GBP/USD is worsening after its failure Tuesday to top the important 1.35 resistance level. To an extent, its subsequent decline has simply reflected a rally in the US Dollar as market sentiment has deteriorated. However, GBP traders will likely become increasingly focused in the days ahead on a continuing lack of progress in the ongoing talks between the EU and the UK on their relationship post Brexit – a negative factor for Sterling.

Speaking at a seminar Wednesday, chief EU negotiator Michel Barnier said he was “worried and disappointed” by the lack of progress in the negotiations and said there is a “strict deadline” of end-October to agree a trade deal. His comments were dismissed by the UK as a “deliberate and misleading caricature” of the UK’s proposals but the ramping up of the rhetoric will still likely weigh on GBP/USD, and benefit EUR/GBP, as the deadline approaches.

Note, though, that EUR could be held back, limiting any strong gains for EUR/GBP, by suggestions that the European Central Bank does not want to see EUR/USD above the 1.20 level. Its chief economist Philip Lane noted earlier this week that the exchange rate “does matter” to the ECB.

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