GBP : UK - EU Meeting

(Tue, 8 Dec 2020). GBP/USD is easing modestly as UK Prime Minister Boris Johnson prepares to travel to Brussels to meet European Commission President Ursula von der Leyen in an attempt to reach agreement on a deal defining the EU-UK relationship once the Brexit implementation period ends on December 31.

The expectation in the markets is that the two sides will probably reach a bare-bones deal this month but Sterling traders may be underestimating the chances that the negotiations will fail, the UK will go it alone outside the EU, and GBP will fall accordingly.

GBP/USD AT RISK OF STEEPER LOSSES

GBP/USD is easing gently but could fall much further if hopes are dashed of an EU-UK deal defining their relationship once the Brexit implementation period ends on December 31. Optimism that an agreement can be reached has increased after news that UK Prime Minister Boris Johnson is heading to Brussels for a meeting with European Commission President Ursula von der Leyen.

The two sides are still expected to reach a skeleton deal but there is scope for the negotiations to fail and for GBP/USD to extend its losses. In the meantime the pair will likely be buffeted again by headlines suggesting a deal is close or the talks are hitting a brick wall.

The major sticking points remain fisheries, governance and the competition rules, known as the level playing field. All three will have to be resolved soon if a deal is to be reached. Moreover, the UK will have to back down over international law-breaking legislation that would override the Brexit withdrawal agreement.

While the talks remain key for Sterling, they come against the background of uncertain markets more generally as news that the UK has begun vaccinating people against Covid-19, and the US is homing in on a fiscal stimulus deal, are offset by news that coronavirus cases are rising in the US, Germany and South Korea.

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