March 22, 2023
Sterling Climbs Due to an Extension in Brexit Talks

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On Monday, Sterling reached the $1.34 mark, experiencing gains of more than 1%, after the European Union and Britain extended discussions for making a post-Brexit deal after Sunday’s deadline. The European Commission’s president, Ursula von der Leyen, and Boris Johnson, the British Prime Minister, told negotiators to continue their discussions beyond Sunday for resolving an impasse on arrangements for giving access to Britain to the single market of the European Union. Michel Barnier, the Brexit negotiator for the EU, said that it was still possible to sign a new trade pact with Britain, as negotiators attempted to break deadlocks on access to fair-play rules for corporations and access to fishing waters of the UK for EU vessels. 

Speaking to Sky News, Alok Sharma, the British Business Secretary said on Monday that while the EU and Britain may still be finding it difficult to find common ground, Johnson doesn’t wish to walk away. The pound had climbed 1.4% by 0954 GMT against the US dollar, after having reached the day’s high at $1.3411. It had increased by 1% against the euro. Market analysts said that the pound was clearly relieved that trade talks between the two parties would continue. However, the market was expected to remain on tenterhooks since they hadn’t outlined a tangible process over the weekend. 

There was an increase in the odds of Britain making a trade deal with the European Union, as they climbed to 57% on Monday, which is a 40% increase from last week. On Friday, the chances of not making a deal had risen to as high as 61% from 19% in the end of November, after the leaders hadn’t been successful in breaking the impasse in negotiations. Investors seem to be cautiously optimistic about the possibility of a deal, especially as the Brexit transition period will come to an end on December 31st

According to some analysts, it wasn’t surprising that another self-imposed deadline by the EU and Britain had passed. Even though there were little indications of progress up till now, analysts believe that progress will only be made when the real deadline comes to pass. While they believe a deal will be reached, but with each passing day, the chances of a no-deal outcome increase. There is a possibility that a deal announcement would push the sterling past the $1.35 mark, which the rising uncertainty about no trade deal could result in September lows of $1.28. 

Some currency analysts said that they were expecting a pound rally to happen in the next two weeks, with the likely scenario being that of a deal being signed. While there are some major sticking points still, but the possibility is of a thin free trade agreement being signed before the year end, which would ensure that free trade can be done where goods are concerned, but there will be barriers for trade services. Even if a deal does get signed, there will be some acrimony and this would have a negative impact on the outlook for the medium-term.

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