The British pound surged, the euro hit session highs and the dollar slumped following a comment from the EU’s chief Brexit negotiator Michel Barnier, speaking at conference in Bled, Slovenia, who said it’s “realistic” and “possible” to get a Brexit deal within eight weeks. As Bloomberg notes, this was the first specific indication of a time frame on a deal since Germany and the U.K. reportedly abandoned key Brexit demands on Sept. 5.
Cable jumped as as much as 1% against the dollar, back above 1.30, and now up 3% since the low it hit in mid-August.
Quoted by Bloomberg, Barnier, who was speaking at a conference in Bled, Slovenia, said an agreement is needed to be reached by the start of November. He also warned that several issues were still outstanding, including measures to prevent the re-emergence of a hard Irish border and protection of the names of food and agriculture products.
In kneejerk response, 10Y gilts yields erase 1.5bps of outperformance against Bunds, with the U.K. 10y yield rising 2bps to 1.48%. And with the pound spiking, the FTSE 100 promptly erased all session gains, down -0.1% after rising 0.4% earlier, pressured by the stronger currency.
The potentially good news comes in the aftermath of the latest Brexit developments, in which a draft Brexit plan proposed by Eurosceptics in the Conservative party included significant tax cuts, a new military expeditionary and a domestic-built missile defence system, thus confirming expectations for the proposal of a “Canada-style” trade deal. This would go against the proposals made in Theresa May’s “Chequers” agreement, with media reports suggesting that if the new proposals were rejected, Eurosecptics would prefer to leave with EU without a deal, on WTO terms, making a hard Brexit an increasingly likely possibility.
Meanwhile, amid the confusion, there are seven months to go until the UK formally leaves the EU, and there are a number of big questions still unanswered. The biggest of them all, of course, is whether a deal will be agreed in time to avoid the UK crashing out of Europe on World Trade Organisation terms? But even if a deal is reached, will the UK parliament vote in favour of it – and when will we know for sure that ‘no deal’ has been averted?
Here’s a guide to the timeline of negotiations between now and March 2019, courtesy of ING.
And below are the four potential scenarios for Brexit talks in early 2019.