The EU Summit
It was all eyes on the EU Summit on Thursday, as negotiators and heads of states entered a final round of negotiations.
Ahead of the Summit, Boris Johnson had set a deadline of 15th October for a Brexit blueprint to be in place.
The deadline was imposed following a lack of progress from the week prior and a heated Macron–Johnson call from the weekend.
Prior to Johnson’s call with Macron, the EU had talked of compromise as the two sides remained deadlocked.
Macron made it clear that access to UK fisheries must remain unaltered, which drastically reduced the chances of an agreement.
For Boris Johnson and British negotiators, there was little progress made towards any kind of an agreement.
UK fisheries remained a stumbling block, with both sides refusing to yield.
On Wednesday, the British Prime Minister had extended his self-imposed deadline until today. The deadline was extended to consider any progress made at the EU Summit on Thursday.
With ‘no strong and credible’ sign of a breakthrough, the big question is whether Boris Johnson will pull the plug.
British negotiator David Frost appears to be of the view that a deal is reachable over the next 2-weeks.
For the British PM, however, another false deadline may prove to be damaging to his credibility. EU negotiator Barnier had mocked Johnson’s deadline earlier in the week.
When considering the EU conclusions released and summarised below, both sides have their work cut out should there be yet another round of talks.
The EU Conclusions
- European leaders urged the UK government to take the necessary steps to clinch a UK-EU free trade deal.
- The EU is eager to reach a fair deal, but not at any price.
- All 27 member states agreed for Michel Barnier to continue negotiations.
- In addition to UK fisheries, the EU cited other key areas of focus that included a level playing field and governance.
- With regards to the Internal Market Bill, the Withdrawal Agreement and its Protocols must be fully and timely implemented.
Boris Johnson and the Pound
On Thursday, the Pound fell by 0.79% to end the day at $1.2909. It could have been much worse, with the Pound having visited sub-$1.29 levels before finding support.
For the day ahead, however, it all hinges on Boris Johnson and his view on the outcome of the EU Summit.
EU negotiators believe that talks can continue through to the middle of next month. Johnson’s latest deadlines suggest that Britain thinks otherwise. It is no coincidence that the EU’s mid-November timeline comes after the U.S Presidential Election. There is a view that the EU is stalling on the hope of a Biden victory. Johnson would lose Trump’s support, which could change the shape of negotiations.
Today’s comments from Downing Street will be pivotal, therefore, in what lies ahead.
If Boris Johnson agrees to extend talks for an additional 2-weeks, the EU may consider this as a small victory.
An unwillingness to yield on demands to access UK fisheries and a willingness by the British government to extend talks suggests the possibility of compromise.
It also means that the EU, and not Britain, will have greater control over the timelines for any remaining negotiations. If that proves to be the case, then talks can drag on until mid-November.
While this may ease some pressure on the Pound, it is worth noting that EU member states must now prepare for any eventuality. Perhaps a hint of submission that there may be no favorable outcome to further talks.
At the time of writing, the Pound was down by 0.06% to $1.2894, recovering from an early low $1.28864.
A decision by Boris Johnson to pull the plug on Brexit and further talks will send the Pound into a spin. Despite the outcome of Thursday’s Summit, hope has continued to prop up the Pound ahead of Johnson’s announcement later today.
It could be another flash crash or a move back to $1.30 levels and perhaps higher…
This article was originally posted on FX Empire
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