Pound Sterling in +1.0% Gain on Euro and Dollar as Odds of a Brexit Deal Grow

The Prime Minister Boris Johnson briefs members of the Cabinet from his office in No10 Downing Street, after his call with the President of the European Commission Ursula von der Leyen after further talks on Brexit Picture by Andrew Parsons / No 10 Downing Street.

• Market rates: GBP/EUR: 1.1050 | GBP/USD: 1.3425
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• Specialist transfer rates: 1.0972 | 1.3331
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The British Pound 'gapped' higher by over a percent at the start of a new week of trade owing to an improvement in sentiment regarding ongoing post-Brexit trade talks.

UK Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen agreed at the weekend to extend negotiations, leading markets to see increased odds that a deal would be reached.

EU Chief Negotiator Michel Barnier is quoted by the press as saying should a breakthrough on fisheries occur then a deal could be sealed as soon as this week, however alternative readings of the situation suggest the talks could run until year-end.

The Pound is expected to recover ground lost to the Euro, Dollar and other major currencies over recent days provided the odds of a deal being reached before year-end continue to rise.

The Telegraph newspaper reports on Monday a source from the Prime Minister's office Downing said while Johnson’s visit to Brussels last week had failed to make any headway, the mood had changed over the weekend, with the EU now "engaging" with "the problems".

EU sources told the same newspaper member states were holding a firm line but there had been "genuine progress" at the weekend and "enough had moved to convince both sides" that it was worth continuing talk.

"This is politics/brinkmanship to the extreme," says Richard Kelly, Head of Global Strategy at TD Securities. Kelly says that as talks between the EU and UK are likely to be ongoing, this week's Bank of England policy meeting should see no changes made to policy settings.

Following a briefing to ambassadors on Monday, EU Chief Negotiator Michel Barnier said in a statement "it is our responsibility to give the talks every chance of success. Never before has such a comprehensive agreement (trade, energy, fisheries, transport, police & judicial cooperation, etc) been negotiated so transparently and in such little time.

"The next few days are important, if a Flag of European UnionFlag of United Kingdom is to be in place on 1 January 2021.

"Fair competition, and a sustainable solution for our fishermen and women, are key to reaching a deal."

On the matter of fisheries, media are reporting that the UK might compensate EU fishermen in order to gain its objectives, while the talks around the main sticking point of the level playing field appear to be moving. While fisheries is a totemic issue, most political analysts and reporters have said it is one that can be easily solved provided progress is made elsewhere.

The Times reports that after a week of hostility between the two sides there have been positive discussions on how to ensure an economic "level playing field" after Brexit.

The Sun's Nick Gutteridge says EU sources are saying they have watered down a previous desire to impose "lightning tariffs" unilaterally on the UK should they diverge from EU competition rules.

The EU have apparently conceded an independent panel should rule on whether the EU can impose tariffs on Britain.

The developments help swing the pendulum on the mood surrounding Brexit talks back into positive territory, and the Pound has responded accordingly:

The Pound-to-Euro exchange rate has recovered to 1.1000 having been as low as 1.0834 on Friday, meanwhile the Pound-to-Dollar exchange rate has recovered to 1.3362 having been as low as 1.3135.

Above: The Pound gaps higher against the Euro in early Asia trade on December 14. Find out more here about achieving international payment exchange rates just 60 pips from the market.

"GBP is the top performer after Sunday’s deadline morphed into another extension – with markets relieved to avoid no deal risk again," says Rui Ding, an analyst with Citibank. "Going into Sunday’s purported deadline, GBP markets were pricing in 'no deal' risk, trading sub 1.32 on Friday."

Citi Strategist Adam Pickett says he remains a buyer of the Pound and retains an 80% probability of a deal by year-end. "There are no deadlines remaining other than December 31, midnight," says Pickett.

Bloomberg reports on Monday that forty-eight hours of intense diplomacy injected fresh momentum into a process that had seemed to be reaching the end of the road.

One person close to the negotiations told the newswire "a disastrous dinner" between Johnson and von der Leyen on Wednesday had forced negotiators to confront the possibility of failure and persuaded them to revisit ideas that had previously been dismissed. From there, the outlines of a potential deal started to come into focus.

But in a media briefing made on Sunday Prime Minister Boris Johnson has however sought to cool enthusiasm by saying the two sides still "remain very far apart on these key issues but where there is life, there is hope. We are going to keep talking to see what we can do.

“The UK certainly won’t be walking away from the talks. I think people will expect us to go the extra mile... I think the UK should continue to try, and I think that is what the people of this country would want me to do.

"We’re going to continue to try and we’re going to try with all our hearts and be as creative as we possibly can."

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Johnson and von der Leyen agreed on Sunday that enough progress had been made in order to justify the continuation of negotiations, erasing fears that the two sides would call an end to talks on Sunday and trigger a 'no deal' Brexit.

"Despite the exhaustion after almost a year of negotiations, despite the fact that deadlines have been missed over and over, we think it is responsible at this point to go the extra mile," von der Leyen said in a brief briefing made in Brussels on Sunday.

"We have accordingly mandated our negotiators to continue the talks and to see whether an agreement can even at this late stage be reached," she added.

Judging by the slow pace to negotiations and a desire to extract as many concessions from the opposite side as possible, it is feasible that talks run until Christmas period.

While there have been concerns raised throughout 2020 that the need for parliaments on both sides of the channel to OK a deal would prove a potential barrier to talks running too late, what has become clear is that both sides will find solutions to ensure a deal becomes operational by January 01.

Government sources told the Telegraph Parliament would only need 24 hours to ratify a deal, meaning December 30 would be the last day for an agreement to be reached by the negotiators.

The European Parliament meanwhile meets on December 28, and sources in Brussels told The Telegraph if a deal was struck later than that they would "find a way" for MEPs to ratify it in principle before member states’ parliaments voted to give retrospective approval.