|

The dark side of Barnier’s mood

  • Sterling has become a victim of the European Union chief negotiator’s verbal virtuosity.
  • The recent wave of optimism is likely temporary as hard issues of Irish border are still unresolved.

After many months of Brexit-related negativism on both sides, the European Union and the United Kingdom, finally there are some signs of optimism. The European Union chief Brexit negotiator Michel Barnier started last week on the negative side saying he opposes many issues of current Brexit deal strongly sending Sterling more than 200 pips lower from its August highs towards last week low of 1.2783.

The UK’s so-called Chequers proposal has been many times criticized by Barnier. He already made clear that the EU’s member states will not accept its central idea of giving the UK customs agreement enabling an independent trade policy while enjoying the benefits of frictionless trade, and a common rulebook on the agricultural and industrial goods. 

Many other parts of the Chequers proposals are though practical including foreign policy and security, with the UK having softened its position on the jurisdiction of the European court of justice.

The foreign exchange markets cheered Barnier’s sudden change in stance last Friday saying 90% of Brexit deal is done while he held talks with the Austrian Prime Minister Sebastian Kurz. Sterling suddenly appreciated to above 1.3000 level and should the US labor market report not see such a remarkable and unexpected wage growth in August (2.9% y/y), Sterling would have probably remained above that level. 

With Sterling falling back to lows around 1.2910 this Monday, the foreign exchange market fell once again prey of Barnier´s mood. While in Bled, Slovenia, Barnier said that if both sides are “realistic” the Brexit deal is achievable within 6-8 weeks, making it possible for the November 13 European summit to finalize the Brexit deal.

Of course, Sterling surged towards 1.3100 once again. Barnier wants Brexit deal this autumn on the issues of citizens rights, the divorce bill and, crucially, Northern Ireland border, among others.

Barnier’s sudden wave of optimism is striking given the fact that it is actually the first ever smiley phase of otherwise though Euro-pragmatic. While it is not yet known what kind of deal the UK is going to get, neither what kind of separation UK prefers, options are multiple. 

First, it is the Norway + option, with full alignment with EU laws, not only on goods but also services, and accepting that the UK needs a customs union.  The second option is a Canada-style free trade deal. Such agreement would please the Brexiters, but a hard work with Brussels finding a solution for avoiding a hard border on Irish border and that won't be easy.

So the recent wave of sudden optimism is unfounded and probably even politically motivated before the Brexit moods darken again with Barnier turning back to the old, European interests backing moods. And for Sterling, this is the dark side of Barnier’s mood. 

Author

Mario Blascak, PhD

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

More from Mario Blascak, PhD
Share:

Editor's Picks

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans. 

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.