Sterling drops as UK-EU tensions escalate amidst trade deal deadlock

In the early European trading hours on Monday September 7, 2020, Sterling dropped about 0.5% against the USD amidst escalating tensions between the U.K. and the EU.

The drop in the Sterling strength came as U.K. and EU prepare for another round of trade talks, the last two rounds of which have been scheduled to hold before the 15th of October this year.

The talks have been continuously marred by divergence in state aid and fishing rules.

Boris Johnson, U.K. Prime Minister, speaking about the impasse in the deal, on Sunday night said, “There needs to be an agreement with our European friends by the time of the European Council on 15 October if it’s going to be in force by the end of the year.”

“If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on,” he added.

Meanwhile, following U.K’s exit from the European Union political bloc in January after a 2016 vote, the U.K. and the EU had agreed to have more time to develop new trade arrangement to avoid border issues.

After the deadline which ended in December last year, the EU had previously suggested that October would be a perfect time to achieve new trade talks arrangements to allow for enough time for necessary legislative processes before January 1, 2021 that is slated for implementation.

Speaking of the impasse in the trade talks, Coriolis Technologies, a trade analysis firm’s CEO, Rebecca Harding, said while speaking to CNBC’s Squawk Box Europe that it was rather difficult to express certainty over when exactly the deadlock would be broken.
Explaining further, she said,

“It is going to be very difficult for the U.K. to keep those supply chains running,” she said.

Similarly, U.K. and European negotiators have, last month, expressed concerns over the negotiations which seem to have come to a standstill.

According to the EU’s chief negotiator, Michel Barnier, everyone is worried about the state of play of the negotiation with the U.K.

Also on Friday, David Frost, the U.K.’s negotiator, said, “From the very beginning we have been clear about what we can accept in these areas, which are fundamental to our status as an independent country.”

“We will negotiate constructively but the EU’s stance may, realistically, limit the progress we can make next week.”

Apart from the trade talk standstill, another issue that seems to worsen the situation is a new U.K. law planned to be published on Wednesday this week.

The bill, when finally passed into law would reportedly overrule the previous deal that was intended to prevent border crossing limitations between the Republic of Ireland and Northern Ireland, according to Financial Times.