GBP/USD Forecast: Sterling Set To Suffer After Deadlocked Dinner, Ahead Of Brexit Deadline

Deadlock at dinner” screams Thursday’s headline of the Daily Mail, summarizing Wednesday’s long meeting between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen.

The two leaders and their negotiating teams failed to reach a much desired Brexit breakthrough over a three-course dinner which included fish – one of the three topics of contention. Another one is governance and the third is a level-playing-field, which German Chancellor Angela Merkel highlighted earlier in the day. After concluding that they remain “far apart“, the EU and the UK agreed to extend talks until the end of the weekend.

What does this summit mean for sterling? Failing to reach a deal three weeks before the transition expires is an adverse development for the pound. Contingency plans for a no-deal exit are likely to grab the headlines, further weighing on sentiment.

While the weekend deadline may not be the final one – many dates have come and gone – the fact that investors will be unable to react to a Sunday statement may cause some to take bets off the table. Fear of another deadlock could prompt a run against the pound.

As talks continue in Brussels, fresh headlines will likely move sterling, even if significant news is unlikely on Thursday. EU leaders convene for a two-day-summit, but they seem determined to keep Brexit at the margins of their debate, which focuses on approving the budget.

Those impatient to hear from the talks will likely react to another set of negotiations – US fiscal stimulus talks. Republicans and Democrats seem to coalesce around the framework – $900 billion – but not about the details. Nevertheless, there seems to be more optimism in Washington than in Brussels.

The US Food and Drugs Administration is on course to greenlight the Pfizer/BioNTech vaccine for use on Thursday, following the UK, which is already administering the shots. An FDA approval, even if expected, may give a shot in the arm to markets after Wednesday’s down day.

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