When it comes to trading financial markets, hope generally isn’t deemed a legitimate strategy. However, yesterday’s move higher for the pound was indeed based largely on a foundation of hope. Brexit negotiations reconvened yesterday and the market is now betting on some form of compromise, potentially leading to a deal.
Negotiations this week will most likely be based around the few remaining thorny issues which have caused a great deal of friction between the 2 sides since day 1. These include the subject of UK fisheries as well as state aid. Put simply, the UK would like full autonomy over their waters while the EU would like access of some form. With respect to state aid, the EU would like a level playing field, where the UK government would not be able to heavily assist certain industries by more than themselves. This would essentially create a level playing ground, where either side does not have an unnecessary advantage over the other based around financial influence from the government.
If a compromise can be found over the aforementioned issues then the 2 parties will certainly be moving in the right direction. The soft deadline arrives on the 15th of October with the real test being the 31st December 2020 when the transition period ends. While many are hoping these issues are rectified within the next 2 weeks, the reality may be that, in true Brexit style, a compromise is struck in the 11th hour, meaning it could be a while before any material compromises and progress are made.
Written by Viv Savani. 8:12am, September 29th 2020
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