EU & UK Opposed Over Trade Vision
GBP has seen further volatility this week. The UK and European leaders clashed over initial ideas on how to proceed with trade deal negotiations. Following the UK’s departure from the EU on January 31st, the two sides are now locked into an 11-month transition. The phase is due to end on December 31st of this year.
UK and European leaders gave statements this week laying out their vision for the future relationship between the two economic states. However, these visions were in stark contrast. Already, there are fears that the eleven-month deadline will not be enough time to agree to a deal.
Johnsons references Superman During Speech
In a typically quirky fashion. Johnson said during his speech that:
“Humanity needs … some country ready to take off its Clark Kent spectacles and leap into the phone booth and emerge with his cloak flowing as the supercharged champion of the right of populations of the earth to buy and sell freely among each other.”
The crux of Johnson’s vision is that he wants the UK to be granted free trade and sovereignty with regard to its trading contracts outside of the restrictions and conditions of the EU.
Johnson went on to say:
“There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment or anything similar, any more than the EU should be obliged to accept UK rules.”
EU Wants UK To Comply With Competition Regulations
However, Brussels clearly has a different idea in mind. Michel Barnier, the EU’s chief Brexit negotiator, said that in order for the EU to grant Johnson a trade deal, it will require the UK to comply with EU laws and regulations regarding fair business practice. These “level playing field” guarantees are designed to ensure that the UK does not gain an unfair competitive advantage of European companies.
EU Wants UK To Report On Climate Change Progress
The EU also wants the UK to report to it on the progress of its fight against climate change. As part of the conditions laid out by the EU, the UK is to set up an independent watchdog to monitor its fight against climate change. Barnier said:
“The envisaged partnership should ensure that the United Kingdom implements a transparent system for the effective domestic monitoring, reporting, oversight, and enforcement of its obligations by an independent and adequately resourced body or bodies”.
Clear Division & GBP Risks
Though these are merely the opening statement from the two sides, there is clearly quite some ground between the two visions held. In terms of the impact on GBP, there are clear risks over the year. Johnson remains adamant that the UK is prepared to walk away from negotiations without a deal if the two sides cannot agree on mutually-beneficial terms. However, such an outcome presents great uncertainty for businesses. This could weigh on GBP if the odds of that happening appear to increase.
EURGBP has started to show signs of bottoming out within the recent bearish channel. This had framed the sell-off from 2019 highs. Price is potentially carving out a higher low here against the .8317 bottom. We could see a fuller correction towards the .8626 level initially, with .8816 above. If price breaks lower from here, the .8317 is the main downside level to watch. Below there, the .8121 level is the next major structural support.