Beyond Currency

"Boris Johnson and Ursula von der Leyen were unable to bridge the considerable gaps which remain between the two sides' positions over a post-Brexit trade deal following a meeting in Brussels last evening.

Delivering the downbeat news, a spokesman for Johnson confirmed that talks between Barnier and Frost will resume later today. The only agreement that was reached is that a firm decision will be made by this Sunday.

Nothing appears to have materially changed over the three major sticking points, and the chances that the transition period will end on December 31st with no trade deal in place have increased significantly.

With both sides’ economies in tatters following the Coronavirus Pandemic it was hoped that there could be compromise over fishing rights, competition rules and how the future relationship will be governed.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The respective Brexit negotiating teams led by Lord Frost and Michel Barnier appear to have exhausted every avenue available to them to find a solution to the remaining issues that face the conclusion of a trade deal and the future relationship.

The outstanding issues remain unchanged: Fishing rights, the creation of a level playing field, and how disputes will be dealt with as the UK departs the European court system.

It was rumoured yesterday that the British delegation had agreed to soften the terms of the internal markets bill which will come into force if no deal is agreed and is considered by Brussels to contravene the agreement that is already in place.

It has been 1,629 days since the Brexit referendum decision set the UK on a path to depart the European Union and there have been several false dawns, but now every cliche that has been used such as eleventh hour, five to midnight, last chance saloon and now or never, is coming to fruition."

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The fact that Brexit trade talks are continuing well into December is the perfect illustration of just how important a deal is to both sides.

Talks between the UK and EU Chief negotiators resumed yesterday following a tense phone call between the Prime Minister and EU Commission President on Friday evening. Another such call will take place this evening.

It must be expected that an overall agreement must be within reach otherwise it is hard to imagine why talks are continuing at this late stage.

The Chancellor of the Exchequer has begun to consider how he will start to recoup some of the money he has provided to help all areas of the economy to survive the Pandemic.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"As negotiations continue over a trade deal between the UK and the EU, there are very mixed messages coming from both sides. After a rather disappointing round of talks on Wednesday, yesterday appeared to hold out much more hope. As was mentioned yesterday, the matter of fishing rights is punching well above its weight in discussions. It is often the case that a symbolic cause carries more weight than something more basic and meaningful.

Despite an air of optimism, there has been no significant comment over the matters of competition and Government support. It has been fishing where the militancy of the French fleet is well known that there has been open disagreement.

It was expected that this would be the week when an agreement of sorts would be confirmed. This would give the EU Commission and British Parliament a chance to ratify the terms without the late-night dramas that were seen a year ago.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The prospect of an agreement between the UK and EU over a trade deal, and the additional conditions that accompany it remains in the balance. A spokesman for Prime Minister Boris Johnson confirmed yesterday that the UK’s position over the Internal Market Bill remains unchanged.

This could be a supplementary stumbling block even if agreement over the other outstanding issues is reached. When it was passed by Parliament recently the Bill was labelled by Brussels as being in contravention of the agreement that is already in place.

Since the Bill was put in place to provide clarity in what happens over the passage of goods between the Mainland and Northern Ireland in the event of no trade deal being agreed, it will become moot, only if an agreement is reached.

Monday's combination of a weakening dollar and almost a sense of euphoria over Brexit led the pound into waters that have not been visited for some considerable time. The last time the pound closed above 1.34 versus the dollar was almost a year ago and was in response to the result of the General Election.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The financial markets have clearly decided that the conclusion of a trade agreement with the EU is currently by far the most important driver for the economy.

Over the past few weeks as the Brexit clock continues to count down the Chancellor and Bank of England Governor have speculated about the effect of leaving the EU with no deal and it has been generally agreed that no deal will have a more lasting effect on the economy overall than the Covid-19 Pandemic.

That is why, on a day when the effect on those retailers who have become dinosaurs, locked into long bricks and mortar leases on expensive High Street premises, finally accounted for two of the most prominent groups, Debenhams and Arcadia, Sterling still managed to break above long-term resistance levels.

Rumours are again circulating of a deal being reached and news of which of the two sides has blinked first is eagerly awaited.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Parliament will vote today on the new regional tier system that the Prime Minister and Health Secretary have designed to replace the lockdown that ends tomorrow.

While several MPs have complained about various aspects of the restrictions, and Opposition MPs will abstain, it is unlikely that we will see a return to the situation a year ago when, then Prime Minister, Theresa May lost numerous votes on Brexit.

Once the new measures have been agreed, Brexit will return to the top of Boris Johnsons to do list as the transition period now has less than a month to run.

While there has been a degree of progress, the sticking points; fisheries, and economic fair play, remain. Johnson repeated yesterday his long-held view that a deal would be preferable, but the UK will flourish outside the EU’s rigid framework and bureaucratic morass.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Office for Budget Responsibility, an independent body which oversees the fiscal and economic performance of the Government has expressed concerns over the additional effect on the country of a no deal Brexit.

Ursula von der Leyen and Boris Johnson clearly have the final say in what their Chief Negotiators do or don’t offer by way of concessions, but it is now becoming more and more likely that both sides are sleepwalking into no deal which is by far the least favourable outcome.

Last week, while presenting his spending review to Parliament, the Chancellor was at pains to impress just how serious the fallout from the Pandemic will be, it is unclear whether he has factored in the additional cost of trade between the UK and EU reverting to WTO rules from January.

The only possible benefit of that happening would be that businesses that trade with Europe and beyond will already have some experience of using WTO since the UK trades with 111 counties under those regulations.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"At a press conference last evening it became very clear how much Prime Minister Boris Johnson had gone against the scientific advice to allow a softening of the Coronavirus regulations in order to allow the country to have as normal a Christmas as possible.

The revamped tier system which will come into force next week will be tougher than it was in the period running up to the current lockdown with hardly any regions in Tier one.

This means that the hospitality industry faces severe restrictions with a large swathe of the country seeing its pubs and restaurants either unable to open or facing draconian limitations.

Following on from the spending review announced by the Chancellor the previous day, the public face an extremely difficult period until next March.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK economy is unlikely to return to pre-Pandemic levels before the fourth quarter of 2022. Unemployment will peak at 7.5% in Q2 of next year meaning the jobless total will reach 2.6 million. These were the stark outcomes from the Chancellors spending review that he delivered to Parliament yesterday.

While there were dire warnings for the future of the economy, the Chancellor announced two large new areas of investment.

First there will be a £4 billion fund setup for investment in areas that have missed out on funding in the past, while the Government’s restart scheme will receive £3 billion to go towards finding jobs for around a million people who are currently or about to become unemployed.

Equity markets appear to be providing a far more reliable guide to the performance of the economy recently. Yesterday, for example the pound reached its highest levels this quarter, despite the slowing economy and second lockdown.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.