GBP/USD slips back towards 1.3400 with Brexit negotiations poised to continue into weekend

• GBP/USD has slipped back from earlier highs in the 1.3470s and now trades closer to 1.3400 amid profit-taking.
• Brexit talks seem poised to continue into the weekend, with Johnson and von der Leyen expected to agree to continue negotiations.

GBP/USD has given back some of its earlier gains that took it as high as the 1.3470s and now trades just to the north of the 1.3400 level, still up more than 60 pips or 0.5% on the day, however.

Brexit talks set to drag into the weekend

Comments from an EU diplomat in the last few minutes have poured cold water on hopes that UK PM Boris Johnson and EU Commission President Ursula von der Leyen will be able to achieve a breakthrough in Brexit talks when they begin face to face discussions on Wednesday at 19:00GMT in Brussels. The diplomat said that the expected result of the von der Leyen/Johnson diner is to agree that more talks are needed and to signal that a deal is still possible. Moreover, the diplomat added that if a deal were to come by the weekend, then the EU would still be able to proceed with “speedy ratification”. However, the EU is expected to step up no-deal preparations, caveated the diplomat.

Though GBP/USD has slipped back from highs towards the 1.3400 level in recent trade, this move seems more to be being driven by profit-taking following upside seen earlier in the European trading session; during the European morning on Wednesday, GBP/USD rallied from lows just above 1.3350 to well above 1.3400, with some positive comments from UK cabinet minister Michael Gove (implying there is space for a compromise on fisheries) and Irish PM Leo Varadkar (said he thinks the UK might be willing to make some concessions.

News that Wednesday evening’s talks between Johnson and von der Leyen might not be quiet as make or break as they were initially billed does not seem to have come as a huge shock to a market accustomed to policymakers “kicking the can down the road” in negotiations such as these so often.

Not that the outcome of tonight’s talks won’t be hugely important for GBP; according to the UK press, there is a growing view in Brussels that UK PM Johnson’s idea about the kind of sovereignty he wants for the UK is not compatible with a zero tariff and quota-free trade deal with the EU. Perhaps Johnson and von der Leyen might surprise markets by coming to the realisation that their positions are incompatible and talks seeing a complete breakdown.