According to a report in Handelsblatt, a German economic paper, the EU will offer the UK to a two year transition period. That means the UK stays in the EU for an additional two years.
Earlier in the day, the pound crashed as Barnier said that talks are in a deadlock. Cable fell all the way to 1.3120 and has made a full 150 pip turnaround. Further resistance is at 1.3370.
This will push uncertainty to a later date and some may hope that the UK could avert Brexit altogether. May asked for a transition period, but the conditions weren’t clear. If the deal is the current deal, it is a relief.
The only difference between the current full EU membership and the transition period will be that the UK will have no voting rights. This is similar to the Norwegian model.
And if this model works well between 2019 and 2021, will the UK stay with this deal for another period or perhaps forever? Both PM Theresa May and opposition leader Jeremy Corbyn supported the Remain camp but say they respect the will of the people.
Analysis: A very soft Brexit in perpetuity?
GBP/USD jumps to 1.3265, the level that capped it early in the Asian session. The technical level works perfectly well.
More: GBP: Set To Remain Volatile Amid 2 Opposing Forces – BarclaysGet the 5 most predictable currency pairs