Just like life, the currency market is like a roller-coaster. Take what happened yesterday with the Brexit talks. First in the afternoon we had doom and gloom and then a few hours later we had hope.
Like with all divorces, one of the key areas that most lawyers will lock horns over is money.
And the Brexit negotiations is proving to be no different as Michel Barnier, EU ‘s chief negotiator said that there was a “deadlock” over the UK’s so called divorce settlement.
He also said that the lack of progress on this matter was “disturbing”.
The UK was hoping that they would make some headway and at least agree to start talks on a future trade deal before the crucial EU summit on the 19th and 20th October. But this has yet to happened.
In fact, Mr. Barnier has said that he felt he was not in the position to recommend to the European Council to start discussions on the “future relationship”.
With March 2019 fast approaching the lack of progress and the increased chances of the UK getting no deal sent shivers down the spines of sterling bulls with GBP crashing against both the USD and the Euro. The the GBP/USD had fallen down to the 1.31310 levels and the EUR/GBP had risen to around 0.90184.
An internal draft document was leaked which hinted that the 27 European Union countries should prepare to discuss trade amongst themselves which will pave the way to start negotiating trade talks with the UK Government in December. The paper also underlined Mr. Barnier’s earlier comments about a lack of progress but it also mentioned there had been developments on some key areas which would please many.
Though this draft can at any stage be revised, it does show a tiny a bit of hope that a deal could be made before the UK’s official exit.
How did the market react?
Sterling bulls rejoiced. GBP/USD skyrocketed back above 1.32 reversing its previous losses of the day and at the time of writing is currently trading around 1.3264. The EUR/GBP did the opposite and crashed back down falling below 0.9000 levels and is currently trading around 0.8925.
What a difference a few hours make.
When Theresa May announced that Britain would indeed honour its financial commitments to the EU there was the belief that the fifth round of talks would finally bring some much needed clarity that a deal could indeed be made in time, but initially it looked like that the EU and UK were getting nowhere but this leak has showed there could be a bit of light at the end of the tunnel.
One thing for sure is we are still very much in unknown territory, but one thing that is mostly likely certain is that we will continue to get ups and downs with this roller-coaster called the Brexit.