Pound Sterling Advances on Euro, Dollar Today, Barnier Hopes for Brexit Breakthrough, Sets out Fresh Two-Stage Negotiation Strategy for 2018

At the time of writing the Pound-to-Euro exchange rate is trading at 1.1179 having opened the day at 1.1169. The Pound-to-Dollar exchange rate is at 1.1342, having opened the day at 1.3323.

Above: Michel Barnier, (C) European Council.

A "Moment of truth is approaching" for Brexit negotiations says the EU's chief negotiator Michel Barnier, highlighlighting an important point make-or-break point in the British pound calendar.

Michel Barnier has told a conference of European parliamentarians that he hopes Brexit talks are about to make a break-through; something that has allowed Sterling to maintain a firm bid at the start of the new week.

To be sure, the Pound is not moving in a significant manner, but the positive assessment from Barnier will likely underpin the currency's continued rise against the US Dollar, and maintain a solid floor against the Euro.

Barnier told the COSAC meeting in Tallinn, Estonia, of a deal he "hopes to obtain in the next few days".

COSAC is a Conference of the committees of the national Parliaments of the European Union Member States dealing with the European Union affairs as well as representatives of the European Parliament. The tone coming out of the conference is important in that the EU parliament will have a final vote on the Brexit deal.

However, Barnier also warns that the deal is not secure and therefore a major "moment of truth is approaching".

Barnier is hoping to get enough progress from the UK on outstanding matters concerning the first round of Brexit to recommend to a meeting of European leaders in December that talks progress to subsequent stages.

Indeed, Barnier tells COSAC that there are now two more phases to Brexit negotiations that are coming - one being the future trading partnership and one being the proposed transitional deal.

For Sterling the risks are high - the EU 27 must agree this December whether enough progress has been made to progress talks onto subsequent rounds - these subsequent rounds of talks will finally offer businesses in both the UK and EU some certainty as to the future trading landscape.

The certainty should allow for a pickup in business investment once more, something that the UK has seen fade over the duration of 2017 which in turn helps explain the recent slowdown in UK economic growth.

Barnier's talk of two further negotiation stages are interesting in that it now provides markets with further structure as to what the British Pound's roadmap for 2018 looks like.

In short, the currency now has two more hurdles to cross before Brexit in March 2019.

The Pound has moved up to the 1.33 level against the Dollar, "but has failed to push on - likely due to the lack of appetite amongst investor to take a clear directional view ahead of the key Brexit-focused Dec EU summit," says analyst Viraj Patel with ING Bank N.V.

Patel believes "the next couple of weeks will see a lot of noise in the build up to this - noise that we think could be ultimately positive for GBP, especially if it continues to ascribe a 'good chance' to there being progress made in Brexit talks."

The injection of guidance into the Brexit debate by Barnier on Monday follows similar moves by the European Council President Donald Tusk on Friday, November 24 when he said "sufficient progress” in Brexit negotiations is still possible before the mid-December European Council summit.

Tusk also added that such an achievement presents a “huge challenge”.

The European Council chief made the comments after holding a meeting with Prime Minister Theresa May at a council summit Friday.

PM May was widely reported to have gone to Brussels armed with a financial offer worth £40 billion to the EU in the hope of being able to move talks along to the subjects of trade and transition after December’s European Council summit.

However, money and a solution to the Irish border question remained key sticking points following the Friday talks, leading to another warning from Brussels.

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