Brexit Deadline Looms for EUR/GBP

Brexit Deadline Looms for EUR/GBP

It was another day dominated by Brexit talks. With European leaders about to meet, and no progress made, things have been looking bleak. However, news of last minute talks between Boris Johnson and Ursula Von Der Leyen sparked renewed hope. The euro rose on early pessimism on Monday before dropping as hopes raised.

Johnson Heads to Brussels for Last Ditch Effort to Secure a Deal

The Brexit saga rolls on and on. Having spoken over the weekend and once again over the phone yesterday, Johnson and Van Der Leyden will meet one more time. Johnson is travelling to Brussels for last ditch talks.

Yesterday the government confirmed that the internal markets bill only kicks in if there is no deal. It’s been seen as an olive branch and a sign that Britain is willing to move.
Even so, the position still looks grim.

“Talks are in the same position now as they were on Friday,” a UK government source told the Guardian. “We have made no tangible progress. It’s clear this must now continue politically. Whilst we do not consider this process to be closed, things are looking very tricky and there’s every chance we are not going to get there.”

Shifting news on Brexit meant fluctuating fortunes for EUR/GBP. The pound fell sharply early on. Johnson’s claim that he was willing to walk away added to the sense of impending no deal. Johnson’s trip to Brussels has given the market’s renewed hope.

European Council leaders are meeting on Thursday. The Telegraph reports that another option on the table is for Johnson and Von Der Leyen to speak at the weekend, after the Council meeting. This would give the EU a chance to give her a fresh mandate for discussions.

From a high of 0.9137, the euro dropped to 0.90472 on news of further discussions. As trading opened on Tuesday it had climbed back up to 0.90868. In the absence of hard news, the euro remains vulnerable to rumour. However, Capital Economics struck a stark warning for the pound. In the event of a no deal, they said, the euro could climb to parity against pound sterling.

Most analysts still put the chances of a deal at more than 50%. However, optimism flies in the face of significant barriers which still remain in place. Their enduring optimism raises the possibility that many people are still under pricing the possibility of no deal.

EUR Makes Gains Over USD

After consolidation on Sunday, the euro gained once more in late trading to reach a high of 1.2156, before dipping overnight. The pair moved into Tuesday trading at 1.2123.

The dollar is still suffering head winds from disappointing jobs data at the end of last week. Growing expectations that the FED will loosen fiscal and monetary policy later this month add to demand for risk assets.

The euro was buoyed by good news from Germany. Economic sentiment came in at 55 beating forecasts of 45.5. Confidence is also up on the previous year in the Eurozone at 54.4. compared to the previous figure of 32.8.

However, the euro faces its own headwinds. Uncertainty surrounding Brexit and the desire of the ECB to bring the rate lower than 1.2 all create drag.

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