The pound rallied on Thursday after Ireland’s foreign minister said there was a “good chance” of a Brexit trade deal being agreed in the coming days.
“It’s the time to hold our nerve, to trust Michel Barnier, who has done a phenomenal job to date,” Irish foreign minister Simon Coveney said on Thursday morning.
“I believe if we do that, there’s a good chance that we can get a deal across the line in the next few days.”
Sterling had been flat against the euro earlier in the session, while gains against the dollar had been weaker.
“Brexit newsflow remains a potential source of influence for sterling,” said John Fahey, a senior economist at AIB.
EU and UK negotiators remain locked in discussions over a potential deal that would kick-in once the current Brexit transition period ends on 1 January 2021. Both sides are hoping to finalise a deal in the coming days but both camps have cautioned that talks may yet come to nothing.
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Bloomberg reported on Thursday that French diplomats have floated the possibility of vetoing a deal if it is not to their liking. Nations will not see the final text until the conclusion of negotiations when everything is settled. Bloomberg said the French are concerned EU negotiator Michel Barnier could make too many concessions during talks and not give them enough time to scrutinise the deal. Any deal must be approved by all EU states to come into effect.
“At the end of the day, it’s for both sides to move, for both sides to be open to compromises,” EU executive vice president Valdis Dombrovskis told journalists at a press conference on Thursday.
“That is the spirit in which we should be approaching these final conversations and hopefully still finding the agreement. We continue to work with this aim in mind.”
Sebastien Galy, a macro-strategist at Nordea investments, compared the situation to “Le Crunch,” the colloquial term for rugby matches between France and England.
“We have only a few days to conclude the negotiations which means it will be a disaster until neigh the end when the cards come down and the exchange is finalised,” Galy said. “Both sides have for now taken small steps in the right direction with fisheries the latest for the UK.”
The Guardian reported on Wednesday that the UK had lowered its demands when it came to fisheries quotas.
UK prime minister Boris Johnson said Britain was “absolutely committed” to trying for a deal but gave little away on the state of talks when asked at a press conference in Downing Street on Wednesday.
If both sides fail to reach an agreement, it would be highly damaging to both the EU and UK economies. The Office for Budget Responsibility has said no deal would immediately wipe 2% of UK GDP and the governor of the Bank of England said recently the economic impact of no deal would be more severe than COVID-19 over the long term.
A survey of London businesses, published by the Confederation of British Industry on Thursday, found a third are unprepared for a possible no deal Brexit. Almost three quarters of businesses in the capital said securing a trade deal was the most important factor when it came to recovering next year.
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