Headlines hurt GBP as Brexit deadline draws near

Chief EU Brexit Negotiator Michel Barnier has told EU envoys that talks are still stuck around three main issues – fisheries, governance, and a level playing field. He added that “…a deal hangs in the balance…” and “…there may still be a no-deal outcome..”. 

Barnier is not known for his positive approach to Brexit negotiations, but to say “hangs in the balance” with 18 business days left until 31st Dec is a high-impact statement, and he will know that.

PM Johnson added momentum to sterling weakness this afternoon when he stated “..we have been clear that the transition period ends at the end of this year..” i.e. if a deal cannot be found, the nightmare ‘no-deal scenario’ will become reality.

GBP/EUR fell under 1.11050 for the first time since 9th November.

GBP/USD fell under 1.3325 for the first time in a week, but remains near the top of recent ranges due to USD weakness.

This reaction shows that GBP will be pushed around by Brexit to a disproportionate degree. GBP data yesterday was decent (good house price inflation despite tightening credit conditions and above-expectation PMI data), and this morning the UK MHRA approved the BioNTech/PFizer vaccine for distribution as early as next week. All positivity can immediately be crushed by Brexit headlines, making FX exposures difficult to manage.