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Sterling weakens as traders prep for bumpy ride ahead of EU Summit

Wed, 14th Oct 2020 09:07

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Olga Cotaga

LONDON, Oct 14 (Reuters) - Sterling was on the defensive on
Wednesday as uncertainty abounds over whether Britain and the
European Union will have reached a Brexit deal in time for their
self-imposed deadline on Thursday at the EU Summit.

Sterling overnight implied volatility gauges soared to a
seven-month high of above 13% indicating investors
were prepared for unexpected moves in the British currency in
the next hours.

British Prime Minister Boris Johnson and the head of the
European Commission, Ursula von der Leyen, will talk about the
progress of the Brexit negotiations on Wednesday afternoon.

The two chief negotiators, the EU's Michel Barnier and
Britain's David Frost, say they are inching towards a deal,
though they have underscored that important gaps remain on
fishing, level playing field issues and governance.

EU leaders meeting in Brussels on Thursday and Friday to
discuss Brexit will say that progress in talks with Britain is
"still not sufficient" to seal a new trade deal, according to a
draft summit decision seen by Reuters.

The European Union would prefer to have a Brexit deal but is
prepared for the eventuality that no agreement can be reached,
the Commissioner for the EU's single market, Thierry Breton,
told BFM business radio on Tuesday.

MUFG's head of research Derek Halpenny said the focus on
fisheries, one of the last remaining sticking points in the
talks, suggests a final deal was close.

However, any agreement will likely be far removed from what
analysts had initially for, limiting the gains for sterling even
if a deal is signed.

"We are only arriving at the possibility of a deal due to
its being very narrow in scope...There is set to be considerable
disruption and frictions on trade that may well still be
underestimated by the markets that will likely curtail the
period of pound appreciation following a likely deal over the
coming weeks," Halpenny said.

Sterling fell to a one-week low of $1.2865 and was
last trading down 0.4% at $1.2883. It also fell to a five-day
low of 91.21 pence versus the euro and was last trading hands
down 0.3% at 91.08 pence.

(Reporting by Olga Cotaga
Editing by Raissa Kasolowsky)

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