Brexit and the EU Summit – Is the Pound in Store for another Brexit Shock?

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Last week, there had been the hope of a change in tact and progress towards an agreement. Hope came following Johnson and von der Leyen’s call on the previous weekend. The latest updates suggest otherwise, however.

Last week, talks in London failed to break the deadlock, though the news updates were optimistic.

There had been the talk of a willingness to compromise in order to get over the finishing line.

Ahead of the EU Summit tomorrow, however, the news has been bleaker. Updates suggest that the finishing line remains out of reach.

The greatest hurdle remains an agreement on access to UK fisheries. As had been the case in the previous rounds of talks, the two sides remain at polar opposites.

Things deteriorated ahead of a resumption of talks this week. A reportedly fiery talk between Johnson and Macron led to Johnson imposing a 3^rd deadline on talks.

The EU Summit

Tomorrow’s EU Summit is Johnson’s line in the sand. Failure to reach common ground means that Britain will walk away from the table.

Earlier in the year, the critics will have blamed the British government’s negotiating tactics and failure to reach an agreement.

Updates from the weekend, however, shed some light on the EU’s stance and an unwillingness to compromise. As far as an agreement is concerned, all EU member states need to agree to the terms.

Macron’s stance on UK fisheries and call for the EU to stand firm suggests that there may be no way forward.

In stark contrast, German Chancellor Merkel sees the need for compromise and a trade agreement.

As is the case with many issues within the EU, Macron and Merkel have different priorities. France has a significant reliance on UK waters, while Germany does not.

Johnson is also unlikely to yield when considering the fact that Britain is leaving the EU.

Yielding to EU demands to allow unaltered access to UK waters seems at odds with the principles of leaving the EU.

It remains to be seen whether Macron will stand firm at the 11^th hour, however. The reality remains that French fishermen would have no access to UK waters if no deal is reached.

For French fishermen, therefore, the question is whether some access would be better than none at all.

Pound Volatility

At the time of writing, the Pound was flat at $1.2932 for the day and down by 0.80% for the current week.

Following yesterday’s pullback and a lack of updates from Brexit negotiators, the Pound failed to find support early on.

While holding steady through the early hours of this morning, we can expect the volatility to pick up.

When considering Michel Barnier’s sentiment towards Johnson’s “third unilateral deadline”, the view seems to be that talks can continue into November.

This is assuming that the British government sees things the same way. Assuming that France is unwilling to soften its stance on UK fisheries, however, extending talks may prove to be pointless.

One thing is certain. Tomorrow’s talks are likely to be heated and the updates could gyrate the Pound. Merkel failed to align EU member states and the lack of agreement across member states reflects the division and a lack of unity needed for a successful and sustainable EU project.

Before the end of the week, the Pound could begin to slide back towards sub-$1.20 levels or make its way towards $1.40. A deal or no-deal Brexit has left the Pound on a knife’s edge for some time, after having recovered from its March dip to $1.14 levels.

Further stalemate and an agreement to extend talks into November should support a return to $1.30 to $1.35.

A Fractured EU with Macron at the Helm

For the Pound, much will depend on the French President’s stance. Macron appears to be more interested in flying the French flag than that of the EU. Optics are everything in politics.

Just yesterday, Finland’s European minister pointed out that not everything is hinged on fishing. Shifting Macron’s stance, however, may ultimately be the only way to deliver a deal. That leaves the fate of Brexit in the hands of EU member states and more importantly, France.

Not even Michel Barnier is in a position to negotiate when the EU is not aligned on its Brexit stance…

Macron’s stance on UK fisheries and willingness to deliver a no-deal Brexit will be another test for the EU project. Cracks will begin to form should Macron stand firm and Britain leaves without a deal.

A successful British economy in the wake of a no-deal Brexit would be food for thought.

There are a number of EU member states that have considered going it alone. With Merkel’s political career coming to a close, a number of member states may also be unwilling to allow Macron to become the voice of Europe…

For Macron and French fisherman, no access to UK waters would be the price paid for waving the French flag.