Talks surrounding the Brexit deal appear to be in a stalemate with a constantly moving self-imposed deadline once again looming ever nearer. Many of the same sticking points still exist as have been the case for the last year. There were rumours yesterday that the EU was trying to introduce new elements to the negotiation however that has been downplayed by EU sources suggesting there hasn’t been any changes to the talks.
Michel Barnier, the EU Chief Negotiator, will return to Brussels today with many expecting that he may have had a deal in place by this point, however talks are still ongoing. One of the main sticking points in the talks that hasn’t been mentioned quite so frequently is who will actually be responsible for enforcing the rules set out by the agreement. Both parties want to have their own court systems with neither one in control of the other, which presents a challenge if the rules are broken.
To add further flames to the fire Jacob Rees-Mogg has said the Government intends to reinsert the clauses taken out of The Internal Market Bill by the House of Lords. The Prime Minister's spokesman also added that the bill is a “legal safety net” to protect the internal market in case talks with the EU breakdown, leaving the Irish border in a confusing state. What it does potentially do is leave Northern Ireland and Southern Ireland on different trading terms.
In some positive news for the UK the first Pfizer vaccines arrived on the island yesterday with plans to start vaccinating people in the coming days. Education Secretary Gavin Williamson in a buoyant fashion baited several nations with regards to the speed in which the UK was able to get the drug through the regulator, which, depending on your opinion of negotiation strategies may or may not be helpful to the UK team in Brexit talks.
Sterling late last night touched back up to 1.11 against the euro, with any further progress on Brexit likely needed to see further gains. On the other hand, any further news of a breakdown in talk could see the pound slide.
French President Emmanuel Macron appears to be the main instigator of the EU’s increase in strength when negotiating with the UK. Macron is conscious that he may be losing the battle when it comes to fishing as France is the nation most affected should the UK regain control of its waters. Clement Beaune, the French Europe minister said France will veto a deal if "there were a deal that isn't good which in our evaluation doesn't correspond to those interested, we will oppose it". Furthermore, the French leader is concerned with the UK state-aid rules and what regulations will be in place to keep competition fair. State-aid is the support a government can provide to businesses, to either encourage them to set-up in the UK or keep them here following Brexit through tax breaks or grants for example. The irony to this is France has been state funding businesses for decades and have been caught foul of it by the EU themselves on multiple occasions.
The prospect of a deal in the coming days looks unlikely now, but I would expect the negotiating teams to be working over the weekend and at the start of next week. The need for time being allowed for ratification is often mentioned, but just like we have seen in every other EU negotiation nothing is solved until the 11th hour or later. There is a pre-arranged EU Summit starting Thursday next week which has been earmarked for most of the year as the final opportunity for EU countries to debate a deal. It would be the final time that they meet before the end of the transition period set out by Prime Minister Boris Johnson at the start of the year.
This does mean that the negotiations could go well on into late Wednesday next week and I would not be surprised to see a Withdrawal Agreement moment where someone is pushing a trolley of paper around the EU Head Office in Brussels with freshly printed Brexit Agreement papers. As mentioned previously everything will be left to the last minute.
GBPUSD touched a two and a half year high yesterday as the rate fell just short of 1.35 at the absolute peak. Whilst many predicted the influence that Biden would have on the US dollar was to weaken it, some may not have expected the fall to start to take place even 6 weeks before he officially takes power.
We’re one month to the day since the results started to come in and the rate was sat at 1.2960, today we’re 5 cents above that point.
Biden has been following his predecessors’ path of using twitter to make statements, though not deleting them several moments later. Yesterday Biden tweeted “it’s time we reward hard work in America – not just wealth”. This is the sort of principle that no doubt helped him win the election, however from an economic perspective that might include increased corporation tax and also raising personal tax for the middle class and above all who received a tax reduction under Donald Trump, markets were expecting this to happen with a less bullish approach to the economy and a more standard of living direction which no doubt comes with costs.
As we start to get more exposure to Biden in the coming weeks it will become clearer how his influence will start to unfold. He is expected to ask all Americans to wear masks for the first 100 days of his Presidency, which has been a huge contentious point in the US and will create a visual divide. The incumbent President has also confirmed he plans to provide the vaccine to every American for free.
If you’re looking at completing a US dollar transfer it is certainly worth being in contact with your account manager as rate volatility is almost guaranteed. Westpac bank forecasters last month suggested the GBP/USD rate with a Brexit deal could reach 1.40 and considering we’re only 3% below that level currently it could increase further. Whilst a no deal in their eyes will see the GBPUSD rate back below the 1.30, arguably either way in the coming week there could be a huge swing.
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