Brexit Talks Hamper Sterling Recovery As the Market Mood Turns Sour

The pound sterling was in free fall last week, hampered by Brexit talks after the UK and EU acknowledged that the deal was more likely to be abandoned. The deadline for negotiations was to end by Sunday.

In the short term, the reaction to the Brexit talks will be in the spotlight early in the new week. In particular, it will closely monitor the movements of the European and pound sterling crosses. For the rest of the month, the next move in the equity markets, another uptrend or correction, will determine how the dollar will rally for the rest of the year.

British Prime Minister Boris Johnson recently told reporters that “two key things” are stuck in trade negotiations with the EU on Brexit. The UK is now “very likely” to exit the EU “on world trade terms,” that is, without a Brexit deal.

“There are two key things we just can’t make progress on and this is the kind of ratchet clause they put in to keep the UK locked up in everything they want to do in terms of legislation, which doesn’t work. Johnson said. “And then there is the problem with fish when we have to take back control of our waters.”
Market Mood and Implications
The willingness of both parties to continue working on stumbling blocks in an attempt to reach a Brexit trade deal could comfort the pound traders. But it could be a temporary respite as the risk of leaving the EU without a deal continues to loom.

The gloomy market sentiment was also supported by the lack of progress on the US stimulus package as the coronavirus continues to wreak havoc on the country. Several regions have announced lockdowns to try to contain the spread, with the healthcare system on the brink of collapse. US President Donald Trump announced that immunizations with Pfizer vaccine will begin this Monday.

GBP/USD fell 0.50% on Friday to 1.3226, down more than 250 points over the week. On the other hand, it may remain under selling pressure amid concerns over Brexit.