Sterling Extends Losses with No Improvement in Brexit Talks

On Thursday, the Brexit-battered British currency once again extended its losses against the US dollar, as investors became more cautious regarding the possibility of the European Union and Britain failing to agree to a trade deal, with just three weeks to go until the deadline on December 31st. On Wednesday, not very long after 2200 GMT, the British pound fell because a dinner on Wednesday night between the president of the European Commission Ursula von der Leyen and the British Prime Minister Boris Johnson ended with the two sides still being ‘far apart’. According to currency analysts, at this point, the balance of risks is moving downwards for the pound as the time for Brexit talks is coming to its end.

The hopes of a last-minute trade deal between the two sides seem to be fading. In early London trading, the pound extended its losses, as it had declined by 0.6% against the US dollar to trade at $1.3318 by 0829 GMT. It was also down by 0.7% against the euro at 90.755 pence. The British pound has remained jittery because of the Brexit headlines, and it has been dropping in response to news that indicates a trade deal is unlikely and rises when there are high hopes of a deal.

There are a number of investment banks that still believe a deal will be reached even if it is at the last minute. As far as positioning on the British currency is concerned, it is only a bit bearish. In recent weeks, the net short position has been cut by speculators, which means that they don’t expect a short squeeze in the event that the outcome turns out to be positive. Market analysts said that even though the pound was mostly going to trade on the soft side on Thursday because of the disappointing outcome of the last-ditch trade deal attempt in the form of the Von der Leyen and Johnson dinner, they still believe that a deal is a possibility and can be made.

The transition period for Britain with the European Union will come to an end on December 31st. Until it does, Britain remains in the European Union singles market as well as the customs union, which means that rules on travel, trade, and business have been the same. A new deadline of next Sunday was set by which they have to come to a decision about whether the trade talks should continue or not. 

As per the options market, traders are expecting further price swings in the British currency. The implied volatility gauges having a one-week maturity increased to their highest level overnight since March, for both the euro-sterling and the cable. Elsewhere, the Gross Domestic Product (GDP) data showed that the economic recovery for Britain had nearly come to a halt in the month of October. This is certainly not a good sign for the country and if no trade deal is made, things are likely to get worse.