At least for now. European leaders are meeting in Brussels and Brexit is high on the agenda. This is the summit in which the remaining EU 27 members are supposed to assess whether enough progress has been made on Brexit negotiations.
The EU forced the UK to agree to sequencing early in the summer: the parties first need to agree on the terms of the divorce before moving on to talk about future relations. These are similar tactics that were used with Greece. The biggest thorn is the “divorce bill”: the amount of money that the UK needs to pay in order to settle its open tab with the continent.
Signs leading to the summit were not positive. The top EU negotiator Michel Barnier said that talks are deadlocked. Other officials said the chances are low for any kind of progress. “The ball is in Britain’s court” was the mantra.
Merkel to the rescue?
Enter Angela Merkel. The most powerful person in Europe seems to make a move, at least a rhetorical one. Merkel said “I see the ball not only in the UK’s court” and added that “both sides need to move”.
While we are yet to see any movement from the European side, these words from the Chancellor certainly help PM Theresa May in her own home court. The PM is struggling with internal discontent since the unimpressive results of the June 8th elections, in which her Conservative Party lost the absolute majority in parliament.
EU leaders are clearly aware of May’s vulnerable position and are trying to help her politically.
This was enough for the pound to escape the 1.30 handle and reach higher ground. From the lows of 1.3087, cable now trades at 1.3130. Some of the weakness is related to the dollar: the greenback enjoys progress on tax reform in the US.
But can this last? The most thorny issue is the divorce bill. Is Merkel willing to move and accept less than 60 billion euros? May offered something like 20 billion. Can both sides really reach an agreement that will be seen as a victory for both sides? Do they really want to? Or do the EU members prefer punishing the UK for the decision to leave?
Kind words can only do so much. This may be a selling opportunity. What do you think?
Support is at 1.3080, with an additional cushion at 1.30. Resistance awaits at 1.3150 and 1.3220. More: GBP/USD is becoming complicated, like Brexit negotiations
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