GBP Nervous as Brexit Talks Resume
- Brexit negotiators David Davis and Michel Barnier continue talks with money the over-arching issue.
- GBP may come under selling pressure if talks stall.
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The latest round of talks between UK Brexit negotiator David Davis and his EU counterpart Michel Barnier, are being held against a backdrop of a UK government seemingly in disarray with the second resignation in just over a week of a senior Conservative government minister. Late Wednesday, Secretary of State for International Development Priti Patel left the government after unauthorized meetings with Israeli officials, following in the footsteps of Defence Secretary Sir Michael Fallon who resigned earlier on November 1 after becoming implicated in the ongoing Westminster sex scandal.
And while agreement may be getting closer on EU/UK citizens’ rights and the Northern Ireland border issue, according to recent headlines, both sides seem to be as wide apart as ever on the contentious UK exit bill. And if the divorce bill cannot be agreed this month, even in principal, UK trade talks will be pushed further back, likely to the March 2018 summit, leaving GBP vulnerable to a sharp sell-off.
Sterling has been in a holding pattern over the last 8-10 weeks with traders unwilling to second guess the outcome of the ongoing discussions. Against a relatively weak single currency, EUR/GBP has been stuck in a 3 cent range, aided in part by last week’s decision by the Bank of England to raise interest rates to 0.50% from 0.25%. Any agreement that preliminary UK trade talks will be allowed from next month onwards could see the pair break below support in the 0.87300/0.87500 region, while a continued stalemate could see the pair eventually test the 0.90200/0.90300 upper bound.
Either way, Sterling is likely to react sharply in the coming days as Brexit takes a hold of the market.
Chart: EURGBP Daily Timeframe (July – November 9, 2017)
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--- Written by Nick Cawley, Analyst
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