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  • EUR/GBP dropped sharply back from highs above 0.9200 to close Monday FX trade in the 0.9080s.
  • GBP was spurred higher by the news that the UK PM is pushing for an 11th-hour Brexit deal with a new offer on fisheries.

EUR/GBP dropped back from highs at 0.9217 set during Monday’s European morning session before positive Brexit news saw the pair drop back to close Monday FX trade below the 0.9100 level at 0.9087. The pair thus closed Monday trade with losses of just under 40 pips or around 0.4%.  

Brexit latest: EU sources skeptical that UK fish offer would be acceptable

As a reminder, late during Monday’s US session, the news broke that the UK PM Boris Johnson was making an 11th-hour push for a Brexit deal with a new compromise offer on fisheries. Under the new offer, the EU would only have to repay the UK 35% of the value of its catch in UK waters over the course of a five-year transition period. The previous UK demand had been for the EU to reimburse the UK for 60% of the value of its catch in UK waters, while the EU had said it would not go higher than 25%. Political commentators had speculated throughout the day that something in the region of a 35% for five years offer might be palatable to both sides.

Well, the first indications as to the EU response are coming in; EU sources told the Guardian that they were skeptical that the offer would be acceptable in full to EU member states BUT that it could provide the basis for a deal IF acceptable to the French. “Paris is key”, one Senior Diplomat said, according to the Guardian.

Once again, it looks as though things will come down to whether the French will say oui or no. Markets will thus be on notice for any comments from any French diplomatic sources regarding how the new offer is being taken in Paris. If the answer is oui, at least to a resumption of negotiations with the new offer as a framework for a possible agreement, then this could be a big step towards a deal. Of course, differences still remain on other issues, but hopes would be that the goodwill/momentum generated from success in an area as difficult as fisheries would translate into deals across the likes of level playing field and state aid.

Other factors to consider…

Meanwhile, other factors that have seemingly gone more under the radar are UK/France negotiations regarding getting freight travel to and from the UK going again. A deal is not expected before “lunch-time” on Tuesday, according to the latest sources, meaning further delays and disruption in travel to and from the continent that is likely to continue to affect UK small businesses and consumers at a particularly sensitive time of the year.

GBP has largely looked through this, though greater attention is now likely to continue to be paid to the development of the pandemic. Good news on that front is PM Johnson’s announcement that half a million people in the UK have already received their first dose of the Pfizer/BioNTech vaccine. The bad news is that, amid the new outbreak of the more virulent strain, the UK is considering keeping schools closed for the whole of January. School closure typically has a devastating effect on the economy given the removal of a crucial form of childcare for working parents.

In terms of EUR, while eyes will of course remain transfixed on events regarding Brexit and the evolution of the new outbreak in the UK, one should not forget about the Covid-19 situation in the mainland. Indeed, the mainland has already begun picking up cases of the UK’s new, more virulent type of Covid-19 (cases have been reported in Italy, Denmark and the Netherlands). If this outbreak begins to grow/gain traction, toughed lockdowns on the continent could be on the way, which would not be taken well by European equity markets, and EUR would surely take notice.