As Friday dawned, a glimmer of hope remained that London and Brussels might agree a post-Brexit trade deal before the week was out – and the pound to dollar exchange rate could rise to multi-month highs on the back of subsequent sterling strength. What actually followed has been akin to a soap opera: break ups, accusations, reconciliations, and plenty of uncertainty.
Instead, the weekend ended with both sides declaring a pause in negotiations after failing to overcome deep-rooted disagreements – with British officials accusing their EU contemporaries of making fresh demands at the last minute. So, with the time left to secure a deal rapidly running out, Boris Johnson and European Commission President Ursula von der Leyen spoke on the phone on Saturday and agreed to restart the deadlocked talks. In a joint statement, the two leaders – who agreed to speak again on Monday evening – said: “that a further effort should be undertaken by our negotiating teams” to assess if key sticking points “can be resolved”.
Both sides returned to the table in Brussels yesterday afternoon in a “final throw of the dice” to strike a deal. This morning we woke to the news that “significant progress” had been made overnight on the rights of European fleets to fish in UK waters – but nothing had been finalised. However, “level playing field” competition rules – which include issues like state aid for business – remain a significant stumbling block.
Time is of the essence. The Brexit transition period is set to conclude at the end of the month. Any deal must be ratified by parliament in the UK, the European Parliament and EU leaders before then. With the clock ticking to get a deal over the line, the pound to dollar exchange rate began the week by dipping into 1.33 territory. The question this week will be: can the pound remain sanguine in the face of constant updates from the negotiation table or will volatility be elevated?
Why is the Dollar Falling?
The pound vs dollar rate ended last week on firmer footing than it began – and it wasn’t only rising hopes that the UK and EU could agree a deal at the eleventh-hour that gave it a leg up. Sustained dollar weakness also played its part. On Friday things went from bad to worse the currency, when the Bureau of Labor Statistics revealed that the US labour market stalled in November – adding 224,000 fewer jobs than economists had expected, which represented a massive slowdown from the 610,000 jobs added in October.
The British Retail Consortium Like-For-Like Retail Sales hit the headlines today. This measure of the performance of the retail sector is the only economic release of note from the UK until Thursday when a raft of data is released – including the latest Gross Domestic Product figure.
A quiet day in the US economic calendar means tomorrow’s Nonfarm Productivity and Unit Labor Costs figures will be the first influential releases of the week for the dollar.
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