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'Halloween Deadline' for Brexit Talks Creates Next Pound Sterling Flash Point, Starts Week Near Key Levels against Euro and Dollar

- EU, UK negotiators agree to extend London round of talks
- Teams to move to Brussels on Thursday
- Saturday said to be new deadline

Barnier trade negotiations

Above: Michel Barnier. Photographer: Lukasz Kobus. European Union, 2020. Source: EC - Audiovisual Service

  • Market rates: GBP/EUR: 1.1021 | GBP/USD: 1.3028
  • Bank transfer rates: 1.0811 | 1.2763
  • Specialist transfer rates: 1.0921 | 1.2911
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The British Pound starts the new week trading above 1.10 against the Euro and 1.30 against the U.S. Dollar amidst an ongoing sense of progress in ongoing post-Brexit trade negotiations.

However, reports about a weekend deadline for the two sides to make progress will likely ensure investor anxieties remain elevated and intraday volatility could well pick up once more.

"Sterling markets remain focused on Brexit negotiations. Intensified EU/UK talks were supposed to switch to Brussels today, but the EU’s chief negotiator Michel Barnier will reportedly remain in London until Wednesday, which the UK’s Northern Ireland Secretary Brandon Lewis said is “hopefully a good sign” for a deal. Major sticking points remain, however, notably on state aid and fisheries," says Hann-Ju Ho, Economist at Lloyds Bank. "Sterling has so far received limited support from the EU/UK news, with dollar strength pushing it towards $1.30, while it is trading just below €1.10."

The Sunday Telegraph reported EU Chief Negotiator Michel Barnier had agreed to extend negotiations in London until Wednesday 28th October, "amid cautious optimism on both sides over the revived negotiations."

Previous arrangements had envisaged the two teams reconvening in Brussels this week.

Negotiators are now only expected to move from London to Brussels for further talks on Thursday, "with UK and EU sources effectively setting Halloween, next Saturday, as a deadline to decide whether the two sides will be able to reach a deal," reports the Telegraph.

The Pound-to-Euro exchange rate is quoted at 1.1010 on Monday, consistent with the consolidate range that has gripped this pair for the duration of October.

The Pound-to-Dollar exchange rate is meanwhile quoted at 1.3021 as it gravitates back towards the mid-point of its October range.

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GBP exchange rates

Above: GBP/EUR (blue) and GBP/USD (orange) price action since March.

Sterling is widely expected by foreign exchange analysts to rally in the wake of a deal, even if the extent of such a rally is hotly contested with some saying a combination of rising covid-19 infections in the UK, deteriorating public finances and the removal of unfettered access to the EU market in January 2021 make for notable headwinds.

A source with access to the EU-UK negotiations meanwhile told the Telegraph negotiators had agreed solutions on "90 per cent plus" of the areas making up an agreement.

The outstanding issues of future subsidies for UK businesses, future governance of the trade deal and fisheries will likely only be agreed closer to the deadline.

"The main issues remain fisheries and level playing field conditions," says Jakob Ekholdt Christensen, Chief Analyst at Danske Bank. Christensen notes GBP/EUR is now trading in the upper end of the recent 1.0870-1.11 range but he does not think the cross will move above 1.11 "until we get more positive signals that a deal is in sight".

GBP EUR forecast

However the issue of fisheries is unlikely to prevent a deal being reached, according to news reports out on Friday.

It was reported that France is preparing to give ground on the matter of one of the main outstanding issues preventing negotiators from striking a post-Brexit trade deal: fishing.

According to Reuters, France is preparing its fishing industry for a smaller catch after Brexit, industry members said, "in a sign that President Emmanuel Macron is laying the ground for a delicate compromise to help the European Union strike a trade deal with Britain".

Macron struck a decidedly tough tone on the doorstep of the mid-October European Council summit, saying his country would not compromise on access to UK waters.

France's position signalled to markets that the final showdown in post-Brexit trade negotiations would likely rest with fisheries, and it was noted last week that EU Chief Negotiator Michel Barnier isn't "worried about anything else but fish".

Macron has however softened his stance saying earlier this week the French fishing fleet will no longer be in the same situation as today after year-end.

But, privately, his government has gone further, bluntly telling France’s politically influential fish industry to brace for impact, sources told Reuters.

According to the report, Clement Beaune - France's Europe Minister - reportedly told fisherman in Port-en-Bessin in Northern France last week that they should no longer expect to maintain "the status quo".

The Pound spiked higher on the news before retreating back into its 'holding pattern' range.

"We still have that brinkmanship ahead of us and if a deal is done it will be in the final hours and we are still likely to get fears increasing over no deal. So we see limited upside from here," says Derek Halpenny, Head of Research at MUFG.

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