GBP had a momentary moment of excitement when EU Brexit Negotiator Michelle Barnier said in a press conference today that the EU would be willing to offer the UK a “super preferential” trade deal.
“Super preferential”… that sounds nice, thought GBP traders, or at least GBP trading algorithms. Quickly though, the move reversed course as Barnier clarified that a trade deal with the UK would only be “super preferential” IF the UK signed up for “strong fair competition guarantees”.
In other words, we are right in the same place we have always been. The EU wants one thing; to force the UK to sign up to EU rules as a “price” for getting a Free Trade Agreement (well, they also free UK fish). The UK wants another; a Free Trade Agreement that doesn’t force the UK to follow EU rules.
So the two sides remain at loggerheads.
As we bang on about constantly, we get to see UK & EU heads clashing officially for the first-time next week; the first of ten rounds of negotiations begins on Monday and concludes on Thursday.
Personally, I expect officials on both sides to mostly say things like “negotiations are going well” and “good progress is being made”… in other words, basically the same things we heard from US and Chinese officials for month and months before the two sides agreed on their Phase One trade deal. Sure, the occasional bombshell may be dropped, to which GBP will surely be sensitive too, but officials will largely avoid playing their hands in public.
As per the EU’s favourite way of doing things, any solution to the most important issues will likely be left until the very last minute. As in, late December.
That doesn’t mean that we won’t have plenty of GBP related volatility to trade in the interim. Indeed, the more the clock ticks down without a deal having been agreed, the more investors will have to revise higher their perceived probabilities that the transition period will end without a deal. A no deal Brexit, in other words, which most economists agree would be a catastrophe for the UK economy.
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