WATCH: What a looming Brexit deal deadline implies?
Sterling see-sawed against the dollar and the euro on Wednesday, as investor jitters grew ahead of UK prime minister Boris Johnson’s deadline for progress in Brexit trade talks.
Johnson has previously said this Thursday (15 October) marks the latest date for an agreement on a UK-EU trade deal, for it to be signed off and put into place by the start of next year. EU leaders are due to meet in Brussels on Thursday and Friday.
The UK government has threatened to walk away from talks if no agreement is reached, paving the way for Britain to crash out of the EU’s single market and customs union without a deal on 31 December. Economists expect short-term disruption and long-term damage to the UK economy if Britain severs its close trade ties with the bloc.
The pound’s descent on Tuesday continued in early trading on Wednesday as the deadline approached, before sharply reversing course on reports the UK will not abandon talks immediately.
Sterling had lost 0.4% against the dollar (GBPUSD=X) in early trading on Wednesday, but was trading 0.1% higher at around 11am in the UK at around $1.295. It also recouped early losses against the euro (GBPEUR=X), up 0.2% to above Є1.10.
A source close to the discussions told Bloomberg that Johnson would decide on whether to continue with talks after the European leaders’ summit, and that UK officials believed a deal remained possible if negotiations intensified.
Watch: What is a no-deal Brexit and what are the potential consequences?
Dean Turner, an economist at UBS Global Wealth Management said: “The chances of no-deal are still appreciable, but I continue to think that this would be more by accident than design.
“But through all the noise, we should stick to one thought: it is in neither side’s interests not to have a deal.”
The prime minister was due to hold talks with European Commission president Ursula von der Leyen on Wednesday, discussing the state of negotiations.
A Downing Street spokesman told PA Johnson still believed an agreement could be reached, but failure to do so should hold “no fear.”
Meanwhile Reuters is reporting EU officials have drawn up a draft summit decision for Thursday’s meeting, saying progress is “still not sufficient” to strike a deal. It says EU leaders are expected to agree to ramp up planning for a no-deal outcome when Britain’s current transition period expires.
Issues including alignment on standards, fishing access and how disputes are resolved remain key obstacles to a deal.
Watch: Brexit countdown: 78 days until the end of the transition period