Icing on the gateau. Do we get a Brexit deal this week?

Sterling is the best performing major currency this week, aside from this morning’s jump in the Kiwi, as markets await developments in the interminable Brexit saga. This week, the House of Lords rejected the controversial Internal Markets Bill which gave the government unilateral power to override parts of the EU-UK Withdrawal Agreement. And so, one of the EU’s red lines has potentially been resolved and traders are bidding up the pound as we go into the final stages of the trade deal negotiation process.

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Over the last few days, we have heard from leading players in the talks like EU’s chief negotiator Michel Barnier, who have said they are redoubling their efforts to reach an agreement on the future EU-UK relationship. This optimism has also been boosted by UK Chancellor Rishi Sunak stating that significant progress has been made in Brexit talks while announcing plans to provide stability to the financial sector in the post-Brexit era.

Timelines are pressing (but historically flexible!)

As we can see from the above dates and deadlines, the ratification process is complex, especially in the EU, with the Commission, Council and Parliament all needing to approve any deal. If an agreement is mixed, then national and regional parliaments must also ratify before an agreement can apply in full. What we do know is that the Brexit process is unique, so does that mean the absolute final deadline can be pushed a little further out, as the time needed for ratification is not fixed?

31 October ‘Soft’ EU deadline to agree full legal text

15 November ‘Working’ deadline for agreement of full legal text

23-26 November EU Parliament Plenary to ratify new Free Trade Agreement (FTA)

10-11 December EU Summit

31 December End of transition, risk of no-deal Brexit if no permanent FTA is agreed

1 January New relationship comes into force, UK has refused an extension

GBP volatility to ramp up

Political game-playing goes hand-in hand with Brexit and the latest negotiations are still having issues around agreement on fisheries and the level playing field. It’s certainly a pivotal week for Boris Johnson as he risks major economic upheaval unless a trade deal is reached, though the vaccine news gives hope to the service-centred UK economy. A rift with the US President-elect Biden is also brewing if the UK government ride roughshod over parts of the withdrawal deal. Expect the news flow into Sunday’s deadline to intensify.

Sterling is showing good momentum with traders upbeat around a deal. GBP/USD has made a clear drive out of its recent range and past resistance in the upper 1.32s, while EUR/GBP falls ever closer to strong support in the 0.8860 region. A third positive announcement this week can push cable towards the September year-to-date highs at 1.3482 and EUR/GBP towards 0.87.

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