Brexit talks are set to resume later this week after both sides had agreed to suspend talks. A member of Barnier’s team had tested positive, meaning that the EU and the UK missed the EU Summit deadline last Thursday.
This week, there have been numerous reports of an imminent deal that would end the threat of a hard Brexit.
Details are sketchy, however. The talk has been of an interim, changeable agreement that would prevent Britain from leaving without an agreement.
This would ultimately give both sides more time to then fine-tune terms, without either side threatening to walk away.
Irish Prime Minister Martin reportedly affirmed reports of an imminent deal. Martin spoke this week, saying that the outline of a deal could be out by the end of this week.
Neither Boris Johnson nor Ursula Von der Leyen have made similar assessments, however. The lack of wider optimism has pegged the Pound back for now.
Pound
At the time of writing, the Pound was up by 0.35% to $1.33698 against the Dollar. While there hasn’t been a sharp response to the optimism across the news wires, the trend has been upwards.
We could see $1.40 levels come into play should both the EU President and British Prime Minister talk of an imminent deal. Some apprehension before an official announcement of a deal is expected, however.
The Pound has been here before…
With BoE Governor Bailey also talking of Brexit as the key threat to the UK economy, expect a market response to any news later in the week.
One drag on the Pound, however, will be the COVID-19 pandemic and existing containment measures.
This threat is also easing to a certain extent, however, as a number of pharmas make strides towards delivering an effective vaccine.
Taking into account the two greatest threats to the British economy, a Brexit deal and a COVID-19 vaccine would likely deliver quite a boost.
Downside risks remain, however, if Barnier’s more cautious comments are anything to go by.
It may fall on Boris Johnson to wrap things up on the Brexit front. A successful intervention would not only provide the Pound with support but cement Johnson’s position as Prime Minister. After a stretch of political uncertainty, this too should deliver support for the Pound.
– FX Empires