Pound Firms Tentatively on Lifting of French Blockade

Sterling firmed on Wednesday after three days of falls as France lifted a partial border blockade aimed at stopping the spread of a fast-spreading new COVID-19 strain, and hopes grew of a post-Brexit trade deal despite discouraging comments from both sides.

Just eight days before the United Kingdom casts off into the unknown by exiting the EU’s orbit, no trade deal has yet been sealed though an array of conflicting signals indicate, variously, that a deal is imminent or that talks have far to go.

The pound has been pummelled this week also by the imposition of rigorous new shutdowns across Britain to combat the new virus strain and the decision by many countries to shut travel and freight from the UK.

However, the lifting of the blockade by France will finally allow trucks stranded at the border to start leaving Britain.

“The UK-French supply chain restrictions look to soon be back in play whilst the market remains increasingly convinced of a deal with just the fisheries hurdle, all of which is pushing sterling higher across the board,” said Neil Jones, head of FX sales at Mizuho.

But he predicted volatility to stay high because of continued uncertainty over the Brexit outcome.

By 0850 GMT, sterling was up 0.3% against the dollar at $1.3423, off an earlier high of $1.3442, though it had fallen as low as $1.3190 on Monday. Against the euro, it was up 0.2% at 90.84 pence.

Pound implied volatility remains extremely high compared to other developed currencies, with overnight volatility holding above 25%.

Britain and the EU have repeatedly said they are optimistic a deal can be struck on time, though the latest UK offer on sharing the fish catch from British waters was reportedly deemed “totally unacceptable” by EU chief negotiator Michel Barnier.

A British minister also said unresolved issues remained.

Meanwhile, Brexit uncertainty alongside the damaging virus-linked shutdowns will continue weighing on the pound, especially if failure to clinch a trade deal forces the Bank of England to cut interest rates sub-zero.

The Confederation of British Industry on Wednesday called for more government support for businesses, noting the deepening fall in business activity after coronavirus restrictions were tightened last month.

A motor industry body also said UK car production slipped further last month, meaning output is down by almost a third so far.

Reporting by Sujata Rao and Joice Alves; editing by John Stonestreet

Source: Reuters

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