“The latest EU Leaders’ Summit should have been a defining moment for Brexit negotiations, says Giles Coghlan.
“After all, Boris Johnson had announced in the lead-up that if no substantial progress had been made on Brexit by the Summit, the UK would effectively leave the negotiating table, increasing the chances of a no-deal come 31st December 2020.
“For all the talk, one could not help but feel slightly underwhelmed by the events that have transpired since. Essentially, nothing has really changed. The EU announced it will intensify talks, and Downing Street responded by saying that such an offer is insufficient and that there needs to be fundamental change in the way Brussels approaches negotiations.
“Is this just another case of political grandstanding masquerading as an inherent stalemate? It is difficult to know at present. So, what are the latest market movements telling us?
“At the moment, things are looking cautiously optimistic. The Pound Sterling has remained stable in light of the latest Brexit events and we are seeing hedge funds continue to buy the pound when there are slight dips. Clearly, there is a sense that the pound will continue to recover over the long-term and this will only be bolstered as Brexit talks progress.
“If London and Brussels are able to strike an agreement by the end of the year, I would expect the pound to move higher back towards $1.35. However, we should not view the performance of the pound in isolation of other events beyond Brexit negotiations. After all, the UK has rising COVID-19 cases, impending job losses, a shrinking GDP and a Bank of England moving towards negative interest rates.
“All this means that investors need to keep one eye on the financial markets and the other on the political news front. One thing’s for sure, the next 10 weeks are set to be nothing short of eventful.”