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Jul 02 - 11:55 PM

GBP/USD - COMMENT-Sterling Optimism Misplaced Given Elusive Brexit Deal

By Andrew M Spencer  —  Jul 02 - 09:55 PM

Sterling has been resilient this week despite UK GDP data undershooting forecasts nL8N2E714Z and manufacturing PMI only matching expectations nL8N2E760Z.
An optimistic sterling poll released by Reuters on Thursday may explain the GBP bounce.

Analysts in the poll expect sterling to appreciate 4% in the next year if Britain and the European Union reach an agreement on future trade relations, as they forecast nL8N2E82DJ. This suggests there is demand for the currency on dips and it's up 0.5% this week, though short-covering may have played a role based on IMM data nL1N2E6059.

Yet the EU have maintained since negotiations began, that in order for the UK to retain access to European markets, they must comply with core EU regulations, known as an 'even playing field'.
The UK under PM May accepted this concept, but under PM Johnson, it is equated with compromising Britain's sovereignty. A face-to-face meeting between the EU and UK's chief negotiators was cancelled on Thursday due to lack of progress nL8N2E93R9.

The EU need to protect the interests of their members and deter any further countries from leaving, while the UK is now led by ideological Brexiteers.
The EU's drawn-out coronavirus budget negotiations show that speed is not one of their virtuesnL8N2E929J. Meanwhile, the clock ticks towards the Dec.
31 deadline as both sides prepare for a 'no deal' Brexit.

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Refinitiv IFR Research/Market Commentary


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