Brexit – Hope Turns to Despair, Sinking the Pound

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From the weekend, there were no positive updates to continue to fuel Brexit optimism that saw the Pound return to $1.34 levels.

While EU President Leyen talked of progress in some areas, she acknowledged a lack of progress on the 3 key hurdles.

Four and a half years have passed and Britain and the EU remain deadlocked.

Unlike in previous years, however, time is rapidly running out. Britain’s transition period ends in just a few weeks.

In recent weeks, the EU and Britain had hoped that an agreement would be ironed out ahead of this week’s EU Summit.

An unwillingness by the likes of French President Macron to change their stance on access to UK fisheries has been amongst the major stumbling blocks. Last week, EU Chief Negotiator Barnier had even been ordered to keep Brussels abreast of all negotiations.

There was a concern that Barnier may look to give up too much in order to close out a deal.

Key Brexit Hurdles

For both sides, the key hurdles remain. Britain and the EU have failed to close the gap on the level playing field, governance, and fisheries.

Behind the scenes, the House of Commons is also debating the Internal Market Bill that has drawn condemnation.

A vote in favor of the Internal Market Bill could ultimately bring an end to talks that have failed to yield an elusive trade agreement.

For British exporters, they face the real prospect of trading WTO terms, not only with the EU but also the U.S.

President-Elect Joe Biden has been clear that no U.S – UK trade agreement is possible if Britain jeopardizes the Good Friday Agreement.

News of EU Negotiator Barnier delivering EU diplomats a “very gloomy assessment” has not helped.

Ultimately, a failure by both sides to make concessions is likely to lead to a no-deal Brexit.

For British negotiators, conceding to French demands for unaltered access to UK fisheries remains highly improbable.

It is, therefore, hardly surprising that the Pound has taken a hit and weighed on market risk sentiment today.

The Pound

At the time of writing, the Pound was down by 1.28% to $1.32574. If Barnier’s very gloomy assessment is an omen, the Pound may be on its way back to sub-$1.20.

The markets will likely want something concrete, however, to induce a return to March levels.

There is also the chance of a surge to $1.40 levels. The EU would need to cede on the key hurdles at the 11^th hour, however. Until now, there has been little sign of an EU willingness to allow Britain to sail into the sunset…