- EUR/GBP shot as high as 0.9140 on Monday but has since reversed back to around 0.9050.
- However, as a Brexit deal hangs in the balance, the pair still trades with gains of around 40 pips or 0.4% on the day.
EUR/GBP is pretty much back to where it started the day it opened trade for Monday’s Asia session, in the mid-0.90s. A wave of Brexit pessimism then optimism has seen the pair swing between highs at 0.9140 and current levels around 0.9050, but as things stand the pair still trades with gains of over 40 pips or 0.4% on the day, given the gap higher at the reopening of trade after the weekend.
Boris to visit Brussels to clinch Brexit deal
The Brexit saga drags on. Failure by EU and UK negotiators to reach a deal over the weekend (the three main sticking points of fisheries, state aid and level playing field remain), combined with the much more downbeat tone of officials on both sides of the negotiation on the prospect for a deal all contributed to the steep sterling sell-off witnessed during the early part of Monday’s European session.
However, news in the US session has been a little more upbeat. Initially contributing to the sterling turnaround was news that the UK might drop its controversial internal markets and finance bill, both of which violate the EU Withdrawal treaty signed with the EU last December, if a deal can be reached. From the EU’s perspective, the existence of both of these pieces of legislation has tainted negotiations, hence an offer to pull them might help facilitate reaching a deal, hence the positive GBP reaction at the time.
Still, this news in itself does not bring a deal any closer. That would take breakthroughs on the three key issues mentioned above; fisheries, level playing field and state aid. Clearly, negotiations have got to the point where top-level intervention is needed to make the tough compromises and sacrifices. And that is exactly what might be about to happen, with UK PM Boris Johnson setting off to Brussels to meet face-to-face with EU Commission President von der Leyen on Tuesday to push for a deal.
The two held a call today, where Tuesday’s meeting was organised and the news has been greeted positively by GBP traders. Both Johnson and von der Leyen are likely keen to clinch a deal prior to this Thursday’s EU council summit meeting of EU27 leaders.
If a deal can be clinched, however, GBP’s positive reaction might be tempered, or even ought right reverse, if any of the “hard-line” EU countries (i.e. France) threaten to veto it for “giving too much away” to the British. In other words, what is acceptable to Johnson and von der Leyen might not be acceptable to other members within the EU, who will be within their power to veto the passage of the deal and force a no-deal.
EUR/GBP still trending to the upside
The fading chances for a Brexit deal as the clock ticks down can be seen in EUR/GBP recent uptrend that has seen the pair reverse from lows below 0.8900 in late November to current levels around 0.9050. Indeed, the pair has respected an uptrend linking the 23, 24 and 25 November and 1 and 4 December lows. As long as a Brexit deal hangs in the balance, this uptrend ought to offer solid support.
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