Sterling rose after a Bloomberg article yesterday (28 October) reported that a Brexit deal was closer into view as talks progressed. Both sides were participating in an intensive round of negotiations in London, and, on Thursday, the talks will move to Brussels. If more progress is made by 3rd of November, the UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen will then have to negotiate a final agreement.
Today, though markets remain nervous ahead of the US GDP and ECB meeting as the escalating Covid-19 pandemic has triggered renewed fears of a double dip downturn. With a second lockdown in France and new restrictions about to be imposed in Germany, investors are on edge.
Pound rises on Brexit progress
European Union and UK negotiators managed to resolve “some of the biggest disagreements that have long bedevilled the Brexit talks, raising hopes that a deal could be reached by early November, according to people familiar with the discussions,” Bloomberg noted.
According to the article, sources said that the deadlock has been broken after seven months of negotiations, but traders will still need to see more solid evidence to be convinced of any progress. The sources reported that both sides are working on “the text of an agreement on the level competitive playing field and are close to finalizing a joint document covering state aid.” They have also “moved closer to deciding essential aspects of how any accord will be enforced,” the sources added.
The news pushed the pound higher against the Euro and the majority of its G10 peers. While markets remain cautious, some economists believe that there are positive signs for reaching a trade deal.
The Brexit news should offer support to a pound that has been very sensitive to Covid-19 developments, at a time where lockdowns are devastating economies. In the event of a second wave the pound will definitely remain sensitive and could weaken, and analysts say that positive Brexit news might not be enough to support the pound in the current volatile environment. In this respect the upside potential for the pound is seen to be limited, as many more issues remain to be resolved regarding the Brexit talks, despite recent news.
Despite the recent doom and gloom, there are potential business opportunities to be had with Brexit, “from fishermen to airlines and insurers,” according to an article.
Risks to the pound
Sterling has been sensitive to Covid-19 updates and Brexit news, and it will remain so. According to Pound Sterling Live, “An obvious risk for those watching Sterling exchange rates is that negative Brexit news - which would most likely be a stalemate on fishing - combines with 'risk off' market conditions to trigger substantial declines in value.” But the stimulus support from Central Banks might be enough to support world economies and protect from unexpected currency declines seen in the aftermath of the first wave of Covid-19.
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