Update from Chief Brexit negotiator pushes the pound downwards

The pound had been performing steadily over the last month, making gains against most currencies, including the US dollar and the Euro. The UK and the EU now only have until the 31st December to agree the terms of their relationship once the UK completes its exit from the EU starting on the 1st January. Optimism that a deal being agreed in the early weeks of December had started to grow providing support for the British pound. GBPUSD had reached new highs of 1.3440 not seen since December 2019, GBPEUR gains have been more limited, with highs yesterday at 1.1180.

EU Chief negotiator speaks up and the pounds goes down.

EU chief Michel Barnier told ambassadors in Brussels that a deal with the UK hangs in the balance with 3 significant differences remaining issues preventing a deal being agreed any time soon, Barnier went on to say that it is unlikely a deal will be struck this week. Without a doubt time is running out, these comments have again worried the market, seeing the pound lose value throughout the day.

To add to negative the tone of Barnier comments, French President Emmanuel Macron has also said he is keeping a close eye on Brexit talks and that he will not sign up to any deal that goes against France’s long-term interest. The comments from Barnier and Macron acted as bad combination for the pound, the pound dropped to 1.3287 against the US dollar on Wednesday before climbing back to 1.3350 by the end of the day. Against the Euro the sterling dropped to 1.10 before recovering to 1.1040.

Sterling could remain under pressure for the remainder of the week, as there now seems little to no hope of a deal being agreed during this week talks. Hope now turns to next weeks meeting of EU leaders at the December council summit, where many hope a deal can be struck. With only 29 days to go and the Christmas holidays taking up vital days before the deadline, it seems like the next two weeks are now or never for the UK and EU after 4 longs years of back and fourths.

It seems obvious how sterling's value will be affected based on the likely potential of either outcome. If the UK and EU agree a deal, the pound should at least have the foundations to hold these current levels and potentially make against the Euro, USD and other currencies. Fail to agree a deal and the pound becomes vulnerable to more losses, how big the gains or losses could be only time will tell.

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