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Brexit Trade Deal Possible Next Tuesday, (or Year-end, Depending on the Source)

Frost and Barnier

Above: File image. Prime Minister's Europe Advisor and Chief Negotiator David Frost host talks with chief negotiator for the European Union Michel Barnier inside No10 Downing Street. Picture by Andrew Parsons / No 10 Downing Street

The UK and EU could sign a post-Brexit trade deal as early as next week, according to reports. However, contradictory briefings suggest negotiations can really run down to the wire and that the real deadline envisaged by the EU is December 31.

The UK's Chief Negotiator in EU-UK trade talks has apparently told UK Prime Minister Boris Johnson to be prepared to agree to a trade deal "early next week", according to The Sun.

The report says David Frost has told Johnson a "possible landing zone" could be ready by Tuesday.

Pound exchange rates have shown little reaction to this headline, hinting at a deep sense of caution amongst market players. However, the potential for a sizeable rally or drop in the Pound is said to be growing. "GBP looks poised for a big move as Brexit enters its crunch phase," says Andrew Spencer, a Reuters market analyst.

"At this point, I think I've seen 'sources' reports say that a Brexit deal could come any day between Thursday and next Tuesday, essentially seems that a deal is close, but nobody knows when it might happen...no real change from the start of the week in that case," says Michael Brown, Senior Market Analyst at CaxtonFX.

Thursday's European Council telephone meeting of EU leaders is therefore not a realistic deadline, as had been the assumption for some months now. Instead, political commentators and reports believe the meeting will allow the EU to alter the mandate given to their chief negotiator, Michel Barnier.

While a deal by next Tuesday would present an early Christmas present for those looking for an end to the years of negotiation, caution is urged.

"While there is little new news, barring an optimistic article in The Sun newspaper, investors appear to still be making the assumption that UK/EU Brexit negotiations will prove fruitful. But caution is still warranted," says Clyde Wardle, Senior EM FX Strategist at HSBC.

It was reported on Monday that the EU have all but conceded that the real deadline to talks - if necessity dictates - is New Year's Eve, when the transition period is due to run out. The European Commission has said they would find a "creative solution" in order to facilitate a deal as typically the EU Parliament would need to assess, and then vote on, a deal.

"We prioritise the quality of this agreement over any kind of timing or deadlines. It will have to be high quality, conditions will have to be right. Our priority is to reach an agreement on the substance, and that's an approach we will not deviate from," an EU spokesperson said.

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