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Sterling suffers as UK commitment to deal appears to wane
Thursday 10 Sep 2020 Author: Ian Conway

The eighth round of Brexit trade talks got underway on 8 September, with the European Union (EU) warning Boris Johnson not to row back on parts of the withdrawal agreement reached just a year ago while the UK’s chief negotiator insisted the bloc needed to be ‘realistic’.

The pound took a hefty knock on 7 September after prime minister Boris Johnson threatened to walk away from the talks saying he wouldn’t back down and no deal was ‘a very good option’. Progress so far has been ‘minimal, to put it mildly’ according to Germany’s chancellor Angela Merkel.

Until now sterling had been enjoying a positive run, with traders the most bullish on the currency in two years according to Citigroup. If that is the case, the pound is likely to be more sensitive than normal to news flow from the trade talks.

Investors will be asking whether Johnson will follow through on his threat and walk away without a deal. Commentators suggest he might.

First, having led the 2016 Leave campaign and fought his own party over it during the interim, Brexit is personal for Johnson. Second, he likes a gamble, and so far some of his biggest political bets have paid off. Finally, his huge parliamentary majority gives him plenty of room for manoeuvre.

He is likely to keep the EU and markets guessing until the last moment, with mid-October looking like a rough deadline for reaching an agreement.

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