Negotiations are now set to begin before the end of the week leading markets to believe a deal is closer than ever.

Chief EU Brexit Negotiator Michel Barnier told the European Parliament that the EU was now prepared to make the necessary shift requested by the UK for talks to continue. The UK had resisted committing to further trade talks after last week’s European Council meeting failed to produce any movement in the EU’s trading mandate and resulted in UK Prime Minister Boris Johnson announcing negotiations would not be advancing and to prepare for a no-deal Brexit.

It is understood that the EU met some of the UK’s demands earlier in the week, but the EU’s proposed compromise was still distant from where the UK needed it to be. As both sides well know, the political posturing and theatrics will make an eventual deal appear a greater sense of achievement.

Brexit Progression

There has been two points of contention, firstly the EU’s demand for a level playing field and secondly, that of UK fisheries. The level playing field is without doubt more crucial to the EU as this will mean the UK signing up to rules and regulations on aspects such as state aid that prevent UK businesses from undercutting their EU competition. This is considerably more significant on an economic perspective than fisheries but after the Financial Times reported several weeks ago that the UK and EU had reached a landing zone, meaning there was now a foundation in which to find an agreement, focus has turned to fisheries.

Fisheries is far less economically important to both the UK and EU but potentially carries more political significance. French President Macron, supported by the Irish and Spanish, has been particularly stubborn in this area insisting that EU nation states continued access to UK waters is a prerequisite of any trade deal.

However, Macron’s stance appears to have eased as he recently confirmed to French fishermen that maintaining the same access rights to UK waters was unrealistic. This followed comments from German Chancellor Angela Merkel, in which she said the EU will recognise the UK as a sovereign state, although perhaps Merkle has one eye on the level playing field issue, which is more important to the Germans and their goods trade with the UK. Either way, could Macron’s change in position be the concession that Barnier has proposed to get the UK back at the negotiating table?

Where Next for the Pound?

Michel Barnier could be in London as early as today, something the Telegraph mentioned on Monday this week, as both sides look to progress talks and begin work based on a legal text. Whilst investors remain cautious, optimism around a trade deal is increasing with some citing mid-November as the likely time a deal will be reached. Citibank has now increased its chance of the UK-EU reaching an agreement by year end to 80 percent although the pound is likely to endure short-term volatility as the UK currency remains sensitive to Brexit headlines and there’ll no doubt be more twists and turns in this Brexit saga before a deal is sealed.

Should a deal be clinched then investment Bank Goldman Sachs recently said the pound could rise to 1.15, more than 4 cents higher than where it sits today but in the event of no deal, which is still a distinct possibility and should not be ruled out, the pound could fall to parity against the euro.

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