Trade Negotiations: No Deal Yet, but Pound Sterling is Chipper ahead of the Weekend

EU UK trade negotiations

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  • GBP/EUR spot rate at time of publication: 1.1194
  • Bank transfer rate (indicative guide): 1.0900-1.0980
  • FX specialist providers (indicative guide): 1.1070-1.1090
  • More information on FX specialist rates here

The EU's trade negotiation team has updated European politicians this morning, and confirmed there remains work to be done if a post-Brexit trade deal is to be agreed before year-end.

According to one newswire, the EU says the UK must move towards its position, while the UK says it is up to the EU to make the final compromises.

"The U.K. hasn’t moved sufficiently to overcome the three main obstacles to a trade deal, European Union negotiators told envoys from the bloc’s 27 governments," says a Bloomberg report, which then adds: "The U.K. government has said that both sides have already made concessions on the three remaining areas of disagreement - access to British fishing waters, the level playing field for business, and how any deal is enforced - but that it’s up to the EU to make the final compromises."

In short, the two sides are not budging from their positions and discussions will continue.

"We are both close and far away. It seems that we are very close to agreement on most issues but differences on the three contentious issues persist,” a senior EU diplomat told the Reuters news agency.

Complicating 'the final push' was news out Thursday that a member of EU Chief Negotiator Michel Barnier's team had tested positive for covid-19, a development that has all but ended face to face talks but they will continue over video.

"The EU and Britain are very close to agreement on most issues as time runs out for a trade deal but they are still at odds over fishing rights, guarantees of fair competition and ways to solve future disputes, an EU official told ambassadors in Brussels," says Gabriela Baczynska, Senior Correspondent at Reuters in Brussels.

Despite the deadlock, the Pound is looking relatively chipper and has advanced against the Euro, Dollar and other major currencies ahead of the weekend on the view that negotiations continue and a reading of the situation that the ticking clock will sooner rather than later force a final play.

The GBP/EUR exchange rate is quoted a third of a percent higher than where it started the day at 1.1197, the GBP/USD exchange rate is at 1.3286.

"We continue to think a deal will be struck, and we are entering the final straight of the negotiations. But we highlight the risk still of negative newsflow as both sides seek to extract last-minute concessions," says Luca Pennarola, an analyst at BNP Paribas.

"The danger facing GBP bulls, which justifies locking in at current levels, is that we revert to a scenario of ‘buy the rumour, sell the fact’ come Monday. If a deal does not convince and leaves too many questions unanswered, investors could take profits. For EUR/GBP, the close below the 200dma last week did not trigger a deeper retracement but a breakthrough of 0.8861 would clear the way to 0.88," says Kenneth Broux, Strategist at Société Générale.

EUR/GBP at 0.88 gives a Pound-to-Euro exchange rate of 1.1363.

Mikael Milhøj, Senior Analyst at Danske Bank says the Euro will likely fall agains the Pound in the near-term as a trade deal will ultimately be agreed.

"As our base case remains a simple free-trade agreement covering goods and that a deal is finalised over the next two to three weeks, we expect EUR/GBP to move lower in the very near term, supported by the positive vaccine news favouring cyclical currencies. We lower our 1M forecast to 0.86, which we believe will be the new trading midpoint in the coming year, although we believe risk is skewed towards it going lower than 0.86 in the very-near term in the event of a deal," says Miloj.

EUR/GBP at 0.86 gives a GBP/EUR rate of 1.1630.

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