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  • GBP/USD has stabilised just beneath the 1.3400 level as traders eagerly await the outcome of Johnson/von der Leyen talks.
  • The most likely outcome appears to be that they will agree to continue intensified talks into the weekend.

USD has been gaining ground in recent trade, which has knocked GBP/USD further from its earlier highs. The fell as low as 1.3350 in recent hours, but has recovered back to the just below the 1.3400 level as GBP traders remain on tenterhooks for the outcome of Wednesday’s discussions between UK PM Boris Johnson and EU Commission President von der Leyen. At present, cable trades with gains of roughly 0.3% or just over 40 pips on the day.

Can about to be kicked down the road?

Earlier in the day, and EU diplomat said that the EU’s base case from discussions tonight between Johnson and von der Leyen is that the two will agree to continue talks and that the EU would still be able to pass any Brexit deal that was agreed over the weekend by the end of the month.

Markets seem to have also adopted this as their base case scenario for Wednesday’s talks, though confirmation that the can has been kicked down the road again might spur some minor upside given the tail risk of a complete breakdown in talks had been avoided.

Even if talks are given the go ahead to continue into the weekend, as seems the most likely course of action at this point, hopes are rapidly dwindling that a deal can be had. EU Chief Brexit Negotiator Barnier and other EU officials reportedly now see the chances of any deal being reached as very slim. UK sources haven’t been quite so pessimistic, but in parliament today, the UK PM again reiterated his stance that the UK is not willing to give away any of its sovereignty in exchange for EU market access, a stance that ultimately seems incompatible with holding a free trade deal with the EU.

In the slim chance that there is a major breakthrough between Johnson and von der Leyen over the coming hours, the market reaction is likely to be one of jubilation. However, it is again worth noting that the whole of the EU will have to agree with whatever deal Johnson and von der Leyen have come up with; France has sounded particularly hawkish on this front, not wanting von der Leyen to be too “soft” with the UK and give away anymore.